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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20162017
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-55409
qvclogoa08.jpg
QVC, Inc.
(Exact name of Registrant as specified in its charter)
State of Delaware
(State or other jurisdiction of
incorporation or organization)
23-2414041
(I.R.S. Employer Identification Number)
  
1200 Wilson Drive
West Chester, Pennsylvania
(Address of principal executive offices)
19380
(Zip Code)
Registrant's telephone number, including area code: (484) 701-1000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
(do not check if
smaller reporting company)
Smaller reporting company o
Emerging growth company o
(do not check if smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
None of the voting stock of the registrant is held by a non-affiliate of the registrant. There is no publicly traded market for any class of voting stock of the registrant. There is one holder of record of ourthe registrant's equity, Liberty QVC Holding, LLC, an indirect wholly-owned subsidiary of Liberty Interactive Corporation.
 




QVC, Inc.
20162017 QUARTERLY REPORT ON FORM 10-Q


Table of Contents


 Part IPage
   
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
   
 Part II 
Item 6.
 
 


Table of Contents



Item 1. Financial Statements
QVC, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
September 30,
December 31,
September 30,
December 31,
(in millions, except share amounts)2016
2015
2017
2016
Assets    
Current assets:    
Cash and cash equivalents$319
327
$343
284
Restricted cash11
11
11
10
Accounts receivable, less allowance for doubtful accounts of $90 at September 30, 2016 and $86 at December 31, 2015794
1,370
Accounts receivable, less allowance for doubtful accounts of $84 at September 30, 2017 and $97 at December 31, 2016888
1,246
Inventories1,123
929
1,164
950
Prepaid expenses and other current assets50
42
55
46
Total current assets2,297
2,679
2,461
2,536
Property and equipment, net of accumulated depreciation of $1,045 at September 30, 2016 and $941 at December 31, 20151,087
1,002
Cable and satellite television distribution rights, net205
339
Property and equipment, net of accumulated depreciation of $1,161 at September 30, 2017 and $1,004 at December 31, 2016998
1,031
Television distribution rights, net78
183
Goodwill5,069
5,035
5,066
4,995
Other intangible assets, net2,793
2,936
2,599
2,738
Other noncurrent assets87
67
61
62
Total assets$11,538
12,058
$11,263
11,545
Liabilities and equity



Current liabilities:



Current portion of debt and capital lease obligations$13
9
$17
14
Accounts payable-trade637
658
726
678
Accrued liabilities626
872
630
769
Total current liabilities1,276
1,539
1,373
1,461
Long-term portion of debt and capital lease obligations5,254
5,393
5,073
5,275
Deferred income taxes750
827
730
778
Other long-term liabilities153
181
127
136
Total liabilities7,433
7,940
7,303
7,650
Equity:



QVC, Inc. stockholder's equity:



Common stock, $0.01 par value, 1 authorized share



Additional paid-in capital6,842
6,827
6,867
6,851
Accumulated deficit(2,740)(2,669)(2,904)(2,832)
Accumulated other comprehensive loss(122)(140)(118)(224)
Total QVC, Inc. stockholder's equity3,980
4,018
3,845
3,795
Noncontrolling interest125
100
115
100
Total equity4,105
4,118
3,960
3,895
Total liabilities and equity$11,538
12,058
$11,263
11,545

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2016
2015
2017
2016
2017
2016
Net revenue$1,948
2,007
6,024
5,943
$2,010
1,948
5,954
6,024
Cost of goods sold1,251
1,266
3,816
3,721
1,282
1,251
3,755
3,816
Gross profit697
741
2,208
2,222
728
697
2,199
2,208
Operating expenses:  



  



Operating140
144
428
424
145
140
419
428
Selling, general and administrative, including stock-based compensation172
176
533
536
180
172
489
533
Depreciation38
33
103
101
38
38
116
103
Amortization116
108
345
341
91
116
324
345

466
461
1,409
1,402
454
466
1,348
1,409
Operating income231
280
799
820
274
231
851
799
Other (expense) income:    
Equity in losses of investee(2)(3)(4)(7)
(2)(3)(4)
Interest expense, net(52)(49)(159)(158)(54)(52)(165)(159)
Foreign currency gain5
12
27
11
Loss on extinguishment of debt


(21)
Foreign currency gain (loss)4
5
(6)27

(49)(40)(136)(175)(50)(49)(174)(136)
Income before income taxes182
240
663
645
224
182
677
663
Income tax expense(66)(86)(244)(243)(58)(66)(225)(244)
Net income116
154
419
402
166
116
452
419
Less net income attributable to the noncontrolling interest(9)(8)(28)(25)(12)(9)(33)(28)
Net income attributable to QVC, Inc. stockholder$107
146
391
377
$154
107
419
391

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2016
2015
2017
2016
2017
2016
Net income$116
154
419
402
$166
116
452
419
Foreign currency translation adjustments, net of tax(3)3
36
(77)28
(3)110
36
Total comprehensive income113
157
455
325
194
113
562
455
Comprehensive income attributable to noncontrolling interest(11)(11)(46)(25)(12)(11)(37)(46)
Comprehensive income attributable to QVC, Inc. stockholder$102
146
409
300
$182
102
525
409

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2017
2016
Operating activities:    
Net income$419
402
$452
419
Adjustments to reconcile net income to net cash provided by operating activities:







Equity in losses of investee4
7
3
4
Deferred income taxes(68)(78)(73)(68)
Foreign currency gain(27)(11)
Foreign currency loss (gain)6
(27)
Depreciation103
101
116
103
Amortization345
341
324
345
Noncash interest5
6
Loss on extinguishment of debt
21
Change in fair value of financial instruments and noncash interest5
5
Stock-based compensation24
24
23
24
Change in other long-term liabilities
17
(7)
Effects of changes in working capital items44
(37)58
44
Net cash provided by operating activities849
793
907
849
Investing activities:    
Capital expenditures(140)(132)(83)(140)
Expenditures for cable and satellite television distribution rights(8)(48)
Expenditures for television distribution rights(35)(8)
Changes in other noncurrent assets(2)(1)(2)(2)
Other investing activities(3)2

(3)
Net cash used in investing activities(153)(179)(120)(153)
Financing activities:    
Principal payments of debt and capital lease obligations(1,300)(1,565)(1,791)(1,300)
Principal borrowings of debt from senior secured credit facility1,048
1,470
1,574
1,048
Payment of debt origination fees(2)(3)
(2)
Payment of bond premium fees
(18)
Dividends paid to Liberty(427)(444)
Dividends paid to Liberty Interactive Corporation(491)(427)
Dividends paid to noncontrolling interest(21)(20)(22)(21)
Other financing activities(9)(14)(10)(9)
Net cash used in financing activities(711)(594)(740)(711)
Effect of foreign exchange rate changes on cash and cash equivalents7
(4)12
7
Net (decrease) increase in cash and cash equivalents(8)16
Net increase (decrease) in cash and cash equivalents59
(8)
Cash and cash equivalents, beginning of period327
347
284
327
Cash and cash equivalents, end of period$319
363
$343
319
Effects of changes in working capital items:    
Decrease in accounts receivable$583
319
$369
583
Increase in inventories(192)(298)(191)(192)
Increase in prepaid expenses and other current assets(14)(5)(4)(14)
(Decrease) increase in accounts payable-trade(40)84
Increase (decrease) in accounts payable-trade20
(40)
Decrease in accrued liabilities and other(293)(137)(136)(293)
Effects of changes in working capital items$44
(37)$58
44

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.
Condensed Consolidated Statement of Equity
(unaudited)
Common stock Additional paid-in capital
Accumulated deficit
Accumulated other
comprehensive loss

Noncontrolling interest
Total equity
Common stockAdditional paid-in capital
Accumulated deficit
Accumulated other
comprehensive loss

Noncontrolling interest
Total equity
(in millions, except share data)Shares
Amount
Shares
Amount
Balance, December 31, 20151
$
6,827
(2,669)(140)100
4,118
Balance, December 31, 20161
$
6,851
(2,832)(224)100
3,895
Net income


391

28
419



419

33
452
Foreign currency translation adjustments, net of tax



18
18
36




106
4
110
Dividends paid to Liberty and noncontrolling interest and other


(427)
(21)(448)
Impact of tax liability allocation and indemnification agreement with Liberty


(35)

(35)
Dividends paid to Liberty Interactive Corporation and noncontrolling interest and other


(491)
(22)(513)
Impact of tax liability allocation and indemnification agreement with Liberty Interactive Corporation

3



3
Withholding taxes on net share settlements of stock-based compensation

(9)


(9)

(10)


(10)
Stock-based compensation

24



24


23



23
Balance, September 30, 20161
$
6,842
(2,740)(122)125
4,105
Balance, September 30, 20171
$
6,867
(2,904)(118)115
3,960

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)


(1) Basis of Presentation
QVC, Inc. and its consolidated subsidiaries ("QVC" or the "Company") is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.
In the United States ("U.S."), QVC's televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2 (f/k/a QVC Plus) and Beauty iQ. The Company's U.S. programming is distributedalso available on QVC.com, QVC's U.S. website; mobile applications via its nationallystreaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, etc.).
QVC believes that the Company's digital platforms complement the Company's televised shopping program 24 hours per day, 364 days per year. Internationally,programs by allowing consumers to purchase a wide assortment of goods offered on QVC's program servicestelevised programs, as well as other products that are basedavailable only on the Company's digital platforms. The Company views e-commerce as a natural extension of the Company's business, allowing the Company to stream live video and offer on-demand video segments of items recently presented live on QVC's televised programs. The Company's digital platforms allow shoppers to browse, research, compare and perform targeted searches for products, control the order-entry process and conveniently access their QVC account.
QVC's international televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), Italy, Japan, and France.
In Germany, QVC distributes its program 24 hours per day with 17 hoursthe Republic of live programming. In Japan, QVC distributes live programming 24 hours per day. In the U.K., QVC distributes its program 24 hours per day with 16 hours of live programming. In Italy, QVC distributes programming live for 17 hours per day on satellite and digital terrestrial television and an additional seven hours per day of recorded programming on satellite and seven hours per day of general interest programming on digital terrestrial television. On weekdays, QVC distributes shopping programming in France live for eight hours per day, and distributes an additional 14 hours per day of recorded programming and two hours per day of general interest programming. On weekends, QVC distributes shopping programming in France live for 12 hours per day, and distributes an additional 10 hours per day of recorded programming and two hours per day of general interest programming.
Historically, QVC reported its results on a country-by-country basis. During the year ended December 31, 2015, QVC began reporting its results based on two operating segments: QVC-US, which is comprised of our U.S. operations and QVC-International, which is comprised of our international operations in Germany, Japan, the U.K.,Ireland, Italy and France. ReferIn some of the countries where QVC operates, QVC's televised shopping programs are broadcast across multiple QVC channels: QVC Beauty & Style and QVC Plus in Germany and QVC Beauty, QVC Extra, QVC Style and QVC +1 in the U.K. The programming created for most of these markets is also available via streaming video on QVC's digital platforms. QVC's international business employs product sourcing teams who select products tailored to note 11 for additional information.the interests of each local market.
The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui") for a television and multimedia retailing service in Japan. QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the nine months ended September 30, 20162017 and 2015,2016, QVC-Japan paid dividends to Mitsui of $21$22 million and $20$21 million, respectively.
The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. Live programming is distributed 15 hours per day and recorded programming is distributed for nine hours per day. This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.
The Company is an indirect wholly ownedwholly-owned subsidiary of Liberty Interactive Corporation ("Liberty"), which owns interests in a broad range of digital commerce businesses.businesses, and is attributed to Liberty's QVC Group. The QVC Group common stock (Nasdaq: QVCA and QVCB), tracks the economic performance, assets and liabilities of the QVC Group. The QVC Group tracks the Company, zulily, llc (as of October 1, 2015)("zulily") and Liberty's 38% equity interest in HSN, Inc. ("HSN"), one of the Company's two closest televised shopping competitors, along with cash and certain liabilities. On July 6, 2017, Liberty announced plans to acquire the remaining interest in HSN, which would make it a wholly-owned subsidiary of Liberty following the closing. On April 4, 2017, Liberty entered into an agreement with General Communication, Inc. ("GCI"), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty, whereby Liberty will acquire GCI through a reorganization in which certain assets and liabilities attributed to Liberty’s Ventures Group will be contributed to GCI in exchange for a controlling interest in GCI. Liberty will then effect a tax-free separation of its controlling interest in the combined company, leaving QVC Group common stock as the only outstanding common stock of Liberty. Neither the proposed transactions involving GCI nor the acquisition of HSN is conditioned on the completion of the other, and no assurance can be given as to which of these transactions will be completed first. The QVC Group does not represent a separate legal entity; rather, it represents those businesses, assets and liabilities that are attributed to that group.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

On October 1, 2015, Liberty acquired all of the outstanding shares of zulily, inc. ("zulily") (now known as zulily, llc) and QVC declared and paid a dividend to Liberty in the amount of $910 million with funds drawn from the Company’s credit facility to support Liberty’s purchase.. zulily is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched each day for a limited time period. zulily is attributed to the QVC Group and the Company believes that its business is complementary to the Company. zulily is not part of the results of operations or financial position of QVC presented in these condensed consolidated financial statements. During each of the nine months ended September 30, 2017 and 2016, QVC and zulily engaged in multiple transactions relating to sales, sourcing of merchandise, marketing initiatives, and business advisory services.services and software development. The gross value of these transactions totaled less thanapproximately $7 million and $11 million, respectively, which did not have a material impact on QVC's financial position, results of operations, or liquidity.


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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Additionally, onOn June 23, 2016, QVC amended and restated its senior secured credit facility (the "Third Amended and Restated Credit Agreement") increasing the revolving credit facility from $2.25 billion to $2.65 billion as explained further in note 6. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or zulily. Under the terms of the Third Amended and Restated Credit Agreement, QVC and zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of zulily. As of September 30, 2016,2017, there was $55$300 million borrowed by zulily on the $400 million tranche of the senior secured credit facility,Third Amended and Restated Credit Agreement, none of which the Company expects to repay on behalf of zulily.
QVC engages with CommerceHub, Inc. ("CommerceHub"), which was an approximately 99% owned subsidiary of Liberty prior to the completion of its spinoff from Liberty in July 2016, to handle communications between QVC and certain of its vendors for drop ship sales and returns. CommerceHub is not part of the results of operations or financial position of QVC presented in these condensed consolidated financial statements. During each of the nine months ended September 30, 2016, and 2015, QVC paid CommerceHub for the related services totaling less than $2 million, which did not have a material impact on QVC's financial position, results of operations, or liquidity. As of July 22, 2016, Liberty completed the spin-off of CommerceHub. As a result, Liberty and CommerceHub are now separate publicly traded companies.

The condensed consolidated financial statements include the accounts of QVC, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.
The accompanying (a) condensed consolidated balance sheet as of December 31, 2015,2016, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, 2015.2016.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates include, but are not limited to, sales returns, uncollectible receivables, inventory obsolescence, depreciable lives of fixed assets, internally-developed software, valuation of acquired intangible assets and goodwill, income taxes and stock‑based compensation.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

On May 28, 2014, the Financial Accounting Standards Board ("FASB"(the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09,Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies principal versus agent considerations, in April 2016, the FASB issued ASU No. 2016-10,Identifying Performance Obligations and Licensing, which clarifies the identification of performance obligations and the implementation guidance for licensing, and in May 2016, the FASB issued ASU No. 2016-12,Narrow-Scope Improvements and Practical Expedients, which clarifies assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The updated guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted only for fiscal years beginning after December 15, 2016. The Company has startedreviewed the applicable ASU and has selected the modified retrospective transition method. In addition, the Company expects to elect the practical expedient to not adjust the promised amount of consideration for the effects of a preliminary assessment, butsignificant financing component when its payment terms are less than one year, as well as the practical expedient to exclude from the measurement of the transaction price sales and similar taxes collected from customers. To date, the Company has not yet selectedconcluded it will recognize revenue at the time of shipment to its customers consistent with when title passes. This is a transition method nor has it determinedchange from the effectcurrent practice whereby the Company recognizes revenue at the time of delivery to the customers and deferred revenue is recorded to account for the shipments in-transit. At the current time, the Company is continuing to evaluate the impact of the standard including its determination of whether the Company acts as principal or agent in certain vendor arrangements. The Company is also evaluating the impact of the standard on the presentation and timing of credit card income for its ongoingQVC-branded credit card and its financial reporting.


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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting forstatement disclosures, among other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract.areas. The Company has adoptednot quantified the effects of this guidance as of January 1, 2016, and there was no significant effectpronouncement, but it is working through the relevant aspects to evaluate the quantitative effects of the standard onnew guidance. The Company plans to be able to quantify the effects of these ASU's no later than the fourth quarter of 2017 in its financial reporting.annual report for the year ending December 31, 2017.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The new principle is part of the FASB’s simplification initiative and applies to entities that measure inventory using a method other than last-in, first-out (LIFO) or the retail inventory method. The new standard is effective for the Company for fiscal yearsadopted this guidance as of January 1, 2017, and interim periods beginning after December 15, 2016. The Company has determined there iswas no significant effect of the standard on its ongoing financial reporting.
In January 2016, the FASB issued ASU No. 2016-01, Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments with readily determinable fair values (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s ongoing financial reporting.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which revises the accounting treatment related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for the Company beginning on January 1, 2019 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has not yet determined whatis currently evaluating the effects of adopting this ASUeffect that the updated standard will behave on its ongoing financial reporting.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 with early adoption permitted. The Company adopted this guidance in the third quarter of 2016. In accordance with the new guidance, excess tax benefits and tax deficiencies are recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize forfeitures as they occur rather than continue to estimate expected forfeitures which resulted in an inconsequential effect to the condensed consolidated statement of operations for the nine months ended September 30, 2016.forfeitures. In addition, pursuant to the new guidance, excess tax benefits are classified as an operating activity on the condensed consolidated statements of cash flows. The recognition of excess tax benefits and deficiencies are applied prospectively from January 1, 2016. The presentation changes for excess tax benefits have been applied retrospectively in the condensed consolidated statements of cash flows resulting in $6 million of excess tax benefits for the nine months ended September 30, 2016 reclassified from cash flows from financing activities to cash flows from operating activities. Refer to the reclassification section below for additional detail of the adoption of this guidance.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues to reduce the diversity in practice for appropriate classification on the statement of cash flows. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not expect the adoption will have a material effect on theits condensed consolidated financial statements.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

In October 2016, the FASB issued ASU No. 2016-16, Income taxesTaxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize at the transaction date the income tax consequences of intercompany asset transfers.transfers other than inventory. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We areThe Company is currently evaluating the effect that the updated standard will have on ourits condensed consolidated financial statements and related disclosures.
Reclassifications
Certain prior period amountsIn November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption will have been reclassified to conform with current period presentation.
For the three and nine month periods ended September 30, 2015 the Company has reclassified costs of $30 million and $93 million, respectively,a material effect on theits condensed consolidated statementsfinancial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement for impairment by calculating the difference between the carrying amount and the fair value of operations from operating to selling, generalthe reporting unit. The guidance is effective for fiscal years, and administrative, including stock-based compensation due to continued convergence of broadcast and e-commerce operations which included programming, broadcasting, personnel and production costs.
Forinterim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the three and nine month periods ended September 30, 2015 the Company has reclassified certain prior period amounts relating to the QVC-International segment disclosure to conform with the current period presentation. Refer to note 11 for additional information.
For the nine months ended September 30, 2015 the Company has reclassified excess tax benefit from stock-based compensation of approximately $13 millionadoption will have a material effect on theits condensed consolidated statements of cash flows from other financing activities to accrued liabilities and other in relation tofinancial statements.
In May 2017, the adoption ofFASB issued ASU 2016-09,No. 2017-09, Compensation - Stock Compensation (Topic 718): ImprovementsScope of Modification Accounting, to Employee Share-Based Payment Accounting.
(2) Cableprovide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities for annual periods, and Satellite Television Distribution Rights, Net
Cable and satellite television distribution rights consisted of the following:
(in millions)September 30, 2016
December 31, 2015
Cable and satellite television distribution rights$2,277
2,259
Less accumulated amortization(2,072)(1,920)
Cable and satellite television distribution rights, net$205
339
interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company recorded amortization expense of $47 million and $45 million fordoes not expect the three months ended September 30, 2016 and 2015, respectively, related to cable and satellite television distribution rights. For the nine months ended September 30, 2016 and 2015, amortization expense for cable and satellite television distribution rights was $143 million and $140 million, respectively.
As of September 30, 2016, related amortization expense for each of the next five years ended December 31 was as follows (in millions):adoption will have a material effect on its condensed consolidated financial statements.
Remainder of 2016$46
2017125
201813
20199
20208
The decrease in future amortization expense in 2018 is primarily due to the end of affiliation agreement terms for contracts in place at the time of Liberty's acquisition of QVC in 2003.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(2) Television Distribution Rights, Net
Television distribution rights consisted of the following:
(in millions)September 30, 2017
December 31, 2016
Television distribution rights$2,348
2,279
Less accumulated amortization(2,270)(2,096)
Television distribution rights, net$78
183
The Company recorded amortization expense of $39 million and $47 million for the three months ended September 30, 2017 and 2016, respectively, related to television distribution rights. For the nine months ended September 30, 2017 and 2016, amortization expense for television distribution rights was $141 million and $143 million, respectively.As of September 30, 2017, related amortization expense for each of the next five years ended December 31 was as follows (in millions):
Remainder of 2017$11
201837
201916
202010
20213
(3) Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 20162017 were as follows:
(in millions)QVC-U.S.
QVC-Germany
QVC-Japan
QVC-U.K.
QVC-Italy
Total
QVC-U.S.
QVC-Germany
QVC-Japan
QVC-U.K.
QVC-Italy
Total
Balance as of December 31, 2015$4,190
278
251
193
123
5,035
Balance as of December 31, 2016$4,190
267
258
161
119
4,995
Exchange rate fluctuations
6
47
(23)4
34

33
11
13
14
71
Balance as of September 30, 2016$4,190
284
298
170
127
5,069
Balance as of September 30, 2017$4,190
300
269
174
133
5,066
(4) Other Intangible Assets, Net
Other intangible assets consisted of the following:
September 30, 2016 December 31, 2015 September 30, 2017 December 31, 2016 
(in millions)Gross
cost

Accumulated
amortization

Other intangible assets, net
Gross
cost

Accumulated
amortization

Other intangible assets, net
Gross
cost

Accumulated
amortization

Other intangible assets, net
Gross
cost

Accumulated
amortization

Other intangible assets, net
Purchased and internally developed software$682
(490)192
625
(418)207
$696
(541)155
646
(466)180
Affiliate and customer relationships2,408
(2,242)166
2,409
(2,115)294
2,416
(2,406)10
2,397
(2,274)123
Debt origination fees8
(1)7
9
(2)7
8
(2)6
8
(1)7
Trademarks (indefinite life)2,428

2,428
2,428

2,428
2,428

2,428
2,428

2,428

$5,526
(2,733)2,793
5,471
(2,535)2,936
$5,548
(2,949)2,599
5,479
(2,741)2,738
The Company recorded amortization expense of $69$52 million and $63$69 million for the three months ended September 30, 20162017 and 2015,2016, respectively, related to other intangible assets. For the nine months ended September 30, 20162017 and 2015,2016, amortization expense for other intangible assets was $183 million and $202 million, and $201 million, respectively.

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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

As of September 30, 2016,2017, the related amortization and interest expense for each of the next five years ended December 31 was as follows (in millions):
Remainder of 2016$71
2017202
Remainder of 2017$25
201872
83
201916
47
20204
15
20211
The decrease in future amortization expense in 2018 is primarily due to the end of the useful lives of the affiliate and customer relationships in place at the time of Liberty's acquisition of QVC in 2003.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(5) Accrued Liabilities
Accrued liabilities consisted of the following:
(in millions)September 30, 2016
December 31, 2015
September 30, 2017
December 31, 2016
Accounts payable non-trade$188
240
$193
215
Accrued compensation and benefits99
116
116
92
Allowance for sales returns73
93
Deferred revenue79
83
63
69
Allowance for sales returns73
106
Sales and other taxes50
62
Income taxes55
116
40
120
Sales and other taxes41
79
Accrued interest41
58
37
58
Other50
74
58
60
$626
872
$630
769
(6) Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consisted of the following:
(in millions)September 30, 2016
December 31, 2015
3.125% Senior Secured Notes due 2019, net of original issue discount$399
399
5.125% Senior Secured Notes due 2022500
500
4.375% Senior Secured Notes due 2023, net of original issue discount750
750
4.85% Senior Secured Notes due 2024, net of original issue discount600
600
4.45% Senior Secured Notes due 2025, net of original issue discount599
599
5.45% Senior Secured Notes due 2034, net of original issue discount399
399
5.95% Senior Secured Notes due 2043, net of original issue discount300
300
Senior secured credit facility1,570
1,815
Capital lease obligations74
72
Build to suit lease obligation (1)104

Less debt issuance costs, net(28)(32)
Total debt5,267
5,402
Less current portion(13)(9)
Long-term portion of debt and capital lease obligations$5,254
5,393
(1) At December 31, 2015, the build to suit lease liability (note 7) was presented in other long term liabilities.
(in millions)September 30, 2017
December 31, 2016
3.125% Senior Secured Notes due 2019, net of original issue discount$399
399
5.125% Senior Secured Notes due 2022500
500
4.375% Senior Secured Notes due 2023, net of original issue discount750
750
4.85% Senior Secured Notes due 2024, net of original issue discount600
600
4.45% Senior Secured Notes due 2025, net of original issue discount599
599
5.45% Senior Secured Notes due 2034, net of original issue discount399
399
5.95% Senior Secured Notes due 2043, net of original issue discount300
300
Senior secured credit facility1,390
1,596
Capital lease obligations74
69
Build to suit lease obligation102
105
Less debt issuance costs, net(23)(28)
Total debt and capital lease obligations5,090
5,289
Less current portion(17)(14)
Long-term portion of debt and capital lease obligations$5,073
5,275
Senior Secured Notes
All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to theQVC's senior secured credit facility. The interest on all of QVC's senior secured notes is payable semi-annually.
On April 15, 2015, QVC completed the redemption of $500 million principal amount of its 7.375% Senior Secured Notes due 2020, whereby holders received consideration of $1,036.88 for each $1,000 of principal tendered. As a result of the redemption, the Company recorded an extinguishment loss in the condensed consolidated statements of operations of $21 million for the nine month period ended September 30, 2015.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Senior Secured Credit Facility
On June 23, 2016, QVC entered into a third amendedthe Third Amended and restated senior secured credit agreementRestated Credit Agreement with zulily as borrowers (collectively, the “Borrowers”), which is a multi-currency facility that provides for a $2.65 billion revolving credit facility with a $300 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or zulily with an additional $50 million sub-limit for standby letters of credit.credit (see notes 1 and 13). The remaining $2.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter periods (the “Consolidated“Combined Consolidated Leverage Ratio”). Borrowings that are LIBORLondon Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ Combined Consolidated Leverage Ratio. Because the calculation of the Combined Consolidated Leverage Ratio was revised to include zulily, the effective interest rate margins, on the date that the Third Amended and Restated Credit Agreement was entered into, decreased from the interest rate margins under the previous bank credit facility. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if zulily ceases to be controlled by Liberty, Interactive Corporation, all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Any amounts prepaid on the revolving facility may be reborrowed. Payment of loans may be accelerated following certain customary events of default. The senior secured credit facility is secured by the capital stock of QVC.

QVC had $1,024.8$950 million, available under the terms of the senior secured credit facility at September 30, 2016, including the remaining portion available underof the $400 million tranche that zulily may also borrow on.on, available under the terms of the Third Amended and Restated Credit Agreement at September 30, 2017. The interest rate on the senior secured credit facilityThird Amended and Restated Credit Agreement was 1.9%2.7% at September 30, 2016.2017.
The purpose of the amendment was to, among other things, extend the maturity of ourthe Company's senior secured credit facility, to June 23, 2021, provide zulily the opportunity to borrow on the senior secured credit facility (see note 1), and lower the interest rate on borrowings. The payment and performance of the Borrowers’ obligations under the Third Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement). Further, the borrowings under the Third Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of the capital stock of QVC. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and zulily are also guaranteed by each of zulily’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of zulily’s equity interests.

The Third Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and zulily and each of their respective restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting QVC’sthe Company’s consolidated leverage ratio and the Borrowers’ Combined Consolidated Leverage Ratio.
Interest Rate Swap Arrangements
During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, 2017, the fair value of the swap instrument was in a net asset position of approximately $2 million which is definedwas included in QVC’s senior secured credit facility as QVC’s consolidated total debtother noncurrent assets.

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Table of Contents
QVC, Inc.
Notes to Adjusted OIBDA ratio for the most recent four fiscal quarter period; and limiting the borrowers’ combined consolidated leverage ratio, which is defined in QVC’s senior secured credit facility as QVC and zulily’s combined debt to Adjusted OIBDA ratio for the most recent four fiscal quarter period. The Company defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation).Condensed Consolidated Financial Statements (continued)
(unaudited)

Other Debt Related Information
QVC was in compliance with all of its debt covenants at September 30, 2016.2017.
During the quarter, there were no significant changes to QVC's debt credit ratings.
The weighted average rate applicable to all of the outstanding debt (excluding capital and build to suit leases) prior to amortization of bond discounts and related debt issuance costs was 3.8%4.1% as of September 30, 20162017.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(7) Leases and Transponder Service Arrangements
Future minimum payments under noncancelable operating leases and capital transponder leases with initial terms of one year or more and the lease related to the Company's west coastCalifornia distribution center (build to suit lease) at September 30, 20162017 consisted of the following:
(in millions)Capital transponders
Operating leases
Build to suit lease
Capital Leases
Operating leases
Build to suit lease
Remainder of 2016$3
5

201712
20
5
Remainder of 2017$4
5
1
201815
17
6
16
18
6
201915
14
6
16
14
6
202011
10
6
13
11
6
202112
9
6
Thereafter23
80
73
18
71
67
Total$79
146
96
$79
128
92
The Company has entered into thirteenfourteen separate capital lease agreements with transponder and transmitter network suppliers to transmit its signals in the U.S., Germany and France at an aggregate monthly cost of $1 million. Depreciation expense related to the transponderscapital leases was $3 million for botheach of the three months ended September 30, 20162017 and 2015.2016. For the nine months ended September 30, 20162017 and 2015,2016, depreciation expense related to the transponderscapital leases was $8$9 million and $10$8 million, respectively. Total future minimum capital lease payments of $79 million include $5 million of imputed interest. The transponder service agreements for our U.S. transponders expire between 2019 and 2023. The transponder and transmitter network service agreements for our international transponders expire between 2019 and 2024.2027.
Expenses for operating leases, principally for data processing equipment, facilities, satellite uplink service agreements and the west coastCalifornia distribution center land, amounted to $6$5 million and $7$6 million for the three months ended September 30, 20162017 and 2015,2016, respectively. For the nine months ended September 30, 20162017 and 2015,2016, expenses for operating leases were $18$17 million and $19$18 million, respectively.
On July 2, 2015, QVC entered into a lease (the “Lease”) for a west coastCalifornia distribution center. Pursuant to the Lease, the landlord built an approximately one million square foot rental building in Ontario, California (the “Premises”), and thereafter leased the Premises to QVC as its new west coastCalifornia distribution center for an initial term of 15 years. Under the Lease, QVC is required to pay an initial base rent of approximately $6 million per year, increasing to approximately $8 million per year by the final year of the initial term, as well as all real estate taxes and other building operating costs. QVC also has an option to extend the term of the Lease for up to two consecutive terms of 10 years each.
QVC has the right to purchase the Premises and related land from the landlord by entering into an amended and restated agreement at any time during the twenty-fifth or twenty-sixth months of the Lease's initial term, which will occur in June and July of 2018, with a $10 million initial payment and annual payments of $12 million over a term of 13 years.
The Company concluded that it was the deemed owner (for accounting purposes only) of the Premises during the construction period under build to suit lease accounting. Building construction began in July of 2015. During the construction period, the Company recorded estimated project construction costs incurred by the landlord as a projects in progress asset and a corresponding long-term liability in “PropertyProperty and equipment, net”net and “OtherOther long-term liabilities, respectively, on its consolidated balance sheet. In addition, the Company paid for normal tenant improvements and certain structural improvements and recorded these amounts as part of the projects in progress asset. Upon completion of construction, the long-term liability was reclassified to debt. As of September 30, 2016 the liability related to the west coast distribution center was approximately $104 million of which $87 million was incurred during the nine months ended September 30, 2016.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

On August 29, 2016, the west coastCalifornia distribution center was officially opened. The Company evaluated whether the Lease met the criteria for "sale-leaseback" treatment under U.S. GAAP and concluded that it did not. Therefore, the Company will treattreats the Lease as a financing obligation and lease payments will beare attributed to: (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense representing an imputed cost to lease the underlying land of the Premises. In addition, the building asset will beis being depreciated over its estimated useful life of 20 years. Although the Company willdid not begin making monthly lease payments pursuant to the Lease until February 2017, the portion of the lease obligations allocated to the land is beinghas been treated for accounting purposes as an operating lease that commenced in 2015. If the Company does not exercise its right to purchase the Premises and related land, the Company will derecognize both the net book values of the asset and the financing obligation at the conclusion of the lease term.
(8) Income Taxes
The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant unusual items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.
For the three months ended September 30, 2016,2017, the Company recorded a tax provision of $66$58 million, which represented an effective tax rate of 36.3%25.9%. For the nine months ended September 30, 20162017, the Company recorded a tax provision of $244$225 million, which represented an effective tax rate of 36.8%33.2%. These rates differ from the U.S. federal income tax rate of 35.0% due primarily to the impact of discrete permanent differences related to foreign currency losses realized for tax purposes offset by state tax expense.
QVC is party to ongoing discussions with the Internal Revenue Service under the Compliance Assurance Process audit program. The Company files Federal tax returns on a consolidated basis with its parent company, Liberty. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of September 30, 2016,2017, the income tax returns of the Company, or one of its subsidiaries, waswere under examination in Germany for 2012 through 2014 and the U.K. for 2015. In addition, as of September 30, 2017, income tax returns of the Company, or one of its subsidiaries, were under examination in California, New York City,State, and Pennsylvania as well as in Germany and the U.K. The Company has received assessments related to an examination in Germany. The Company believes that any amounts ultimately paid in connection with the assessments will be creditable against its U.S. federal tax liability.Pennsylvania.
The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Liberty. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Liberty for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Liberty an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Liberty, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.
The amountsamount of the tax-related balances due tofrom Liberty at September 30, 2016 and2017 were $3 million. The amount of tax related balances due to Liberty at December 31, 20152016 were $13 million and $71 million, respectively, and$75 million. These amounts were included in accrued liabilities in the accompanying condensed consolidated balance sheets.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(9) Commitments and Contingencies
The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that the amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
Network and information systems, including the Internet and telecommunication systems, third party delivery services and other technologies are critical to our business activities. Substantially all our customer orders, fulfillment and delivery services are dependent upon the use of network and information systems, including the use of third party telecommunication and delivery service providers. If information systems including the Internet or telecommunication services are disrupted, or if the third party delivery services experience a disruption in their transportation delivery services, we could face a significant disruption in fulfilling our customer orders and shipment of our products. We have active disaster recovery programs in place to help mitigate risks associated with these critical business activities.
(10) Financial Instruments and Fair Value Measurements
For assets and liabilities required to be reported or disclosed at fair value, U.S. GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
The Company's assets and liabilities measured or disclosed at fair value were as follows:


Fair value measurements at September 30, 2016 using 
Fair value measurements at September 30, 2017 using 
(in millions)Total
Quoted prices
in active
markets for
identical
assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
Quoted prices
in active markets for identical assets
(Level 1)

Significant other
observable inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Current assets:



Cash equivalents$125
125


$88
88


Net Investment hedge1

1

Noncurrent assets:

Interest rate swap arrangements2

2

Long-term liabilities:



Debt (note 6)5,159

5,159

5,044

5,044



Fair value measurements at December 31, 2015 using 
Fair value measurements at December 31, 2016 using 
(in millions)Total
Quoted prices
in active
markets for
identical
assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
Quoted prices
in active markets for identical assets
(Level 1)

Significant other observable inputs
(Level 2)

Significant unobservable
inputs
(Level 3)

Current assets:



Cash equivalents$218
218


$113
113


Net investment hedge3

3

Noncurrent assets:







Interest rate swap arrangements2

2

Long-term liabilities:















Debt (note 6)5,189

5,189

5,092

5,092

The majority of the Company's Level 2 financial liabilities are debt instruments with quoted market prices that are not considered to be traded on "active markets," as defined in U.S. GAAP. Accordingly, the financial instruments are reported in the foregoing tables as Level 2 fair value instruments.


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

QVC entered into a Euro 500 million basis swap as a hedge of a net investment in a foreign subsidiary duringDuring the fourth quarter of 2015 and the underlying derivative matured on March 15, 2016. The purpose of this hedge was to protect QVC's investment in the foreign subsidiary against the variability of the U.S. dollar and Euro exchange rate. The Company entered into a similar hedge of the same net investment in a foreign subsidiary effective March 15, 2016 which subsequently matured on September 15, 2016. Effective September 15, 2016, the Company entered into a foreign exchange forward contract with the same purpose as the previous hedges. The forward contract entails QVC's sale of Euro 500 million at a forward rate which matures onyear ended December 19, 2016. The gain or loss is and will be recognized in other comprehensive income and is classified as Level 2 in the table above. No amount of the gain or loss has been reclassified into earnings as of the balance sheet date.
On June 15,31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement did not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, 2016,2017, the fair value of the swap instrument was in a net asset position of less than $1$2 million which wasis included in other noncurrent assets.
(11) Information about QVC's Operating Segments
During the year ended December 31, 2015, QVC began reporting its results based onThe Company has identified two reportable operating segments: QVC-U.S. and QVC-International,QVC-International. Both operating segments are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as a result ofwell as via the One Q Reorganization Plan ("One Q"). The One Q organizational structure is intended to allow the Company to better leverage its global scaleInternet and capabilities, to enhance its competitive position and to create operational efficiencies. Beginningmobile applications in the first quarter of 2016, QVC began allocating certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S. segment, to the QVC-International segment. These management cost allocations are related to certain functions such as merchandising, commerce platforms, information technology, human resources, legal, finance, brand and communications, corporate development and administration that support all of QVC’s operations. For the three and nine months ended September 30, 2016, these costs totaled approximately $8 million and $24 million, respectively.markets.
QVC's chief operating decision maker ("CODM") is QVC's Chief Executive Officer. QVC's CODM has ultimate responsibility for enterprise decisions. QVC's CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, QVC-U.S. and QVC-International. The segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. QVC's CODM relies on internal management reporting that analyzes enterprise results and segment results to the Adjusted OIBDA level (see below).
QVC-U.S. and QVC-International are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as well as via the Internet and mobile applications in certain markets.
The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as net revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per subscriber equivalent. The Company defines Adjusted OIBDA as revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation). The Company believes this measure is an important indicator of the operational strength and performance of its segments, including the ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking among the Company's businesses and identify strategies to improve performance. This measure of performance excludes depreciation, amortization and stock-based compensation, that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.
Performance measures
 Three months ended September 30, Nine months ended September 30, 
 2017 2016 2017 2016 
(in millions)Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

QVC-U.S.$1,374
313
1,338
308
4,111
1,010
4,173
997
QVC-International636
99
610
85
1,843
304
1,851
274
Consolidated QVC$2,010
412
1,948
393
5,954
1,314
6,024
1,271
Net revenue amounts by product category are not available from our general purpose financial statements.


I-16

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Performance measures
 Three months ended September 30, Nine months ended September 30, 
 2016 2015 2016 2015 
(in millions)Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

QVC-U.S.$1,338
308
1,420
333
4,173
997
4,168
988
QVC-International610
85
587
97
1,851
274
1,775
298
Consolidated QVC$1,948
393
2,007
430
6,024
1,271
5,943
1,286
Net revenue amounts by product category are not available from our general purpose financial statements.
Other information
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, 
2016 2015 2016 2015 2017 2016 2017 2016 
(in millions)Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
QVC-U.S.$22
103
15
97
55
308
47
303
$24
83
22
103
70
293
55
308
QVC-International16
13
18
11
48
37
54
38
14
8
16
13
46
31
48
37
Consolidated QVC$38
116
33
108
103
345
101
341
$38
91
38
116
116
324
103
345

September 30, 2016 December 31, 2015 September 30, 2017 December 31, 2016 
(in millions)Total
assets

Capital
expenditures

Total
assets

Capital
expenditures

Total
assets

Capital
expenditures

Total
assets

Capital
expenditures

QVC-U.S.$9,391
120
9,913
169
$9,107
63
9,595
152
QVC-International2,147
20
2,145
46
2,156
20
1,950
27
Consolidated QVC$11,538
140
12,058
215
$11,263
83
11,545
179
Long-lived assets, net of accumulated depreciation, by segment were as follows:
(in millions)September 30, 2016
December 31, 2015
September 30, 2017
December 31, 2016
QVC-U.S.$597
501
$552
594
QVC-International490
501
446
437
Consolidated QVC$1,087
1,002
$998
1,031
The following table provides a reconciliation of Adjusted OIBDA to income before income taxes:
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2016
2015
2017
2016
2017
2016
Adjusted OIBDA$393
430
1,271
1,286
$412
393
1,314
1,271
Stock-based compensation(8)(9)(24)(24)(9)(8)(23)(24)
Depreciation and amortization(154)(141)(448)(442)(129)(154)(440)(448)
Equity in losses of investee(2)(3)(4)(7)
(2)(3)(4)
Interest expense, net(52)(49)(159)(158)(54)(52)(165)(159)
Foreign currency gain5
12
27
11
Loss on extinguishment of debt


(21)
Foreign currency gain (loss)4
5
(6)27
Income before income taxes$182
240
663
645
$224
182
677
663


I-17

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(12) Other Comprehensive Loss(Loss) Income
The change in the component of accumulated other comprehensive loss, net of taxes ("AOCL"), is summarized as follows:
(in millions)Foreign currency translation adjustments
AOCL
Foreign currency translation adjustments
AOCL
Balance at January 1, 2017$(224)(224)
Other comprehensive income attributable to QVC, Inc. stockholder106
106
Balance at September 30, 2017(118)(118)
  
Balance at January 1, 2016$(140)(140)$(140)(140)
Other comprehensive income attributable to QVC, Inc. stockholder18
18
18
18
Balance at September 30, 2016(122)(122)(122)(122)
  
Balance at January 1, 2015$(39)(39)
Other comprehensive loss attributable to QVC, Inc. stockholder(77)(77)
Balance at September 30, 2015(116)(116)
The component of other comprehensive income is reflected in QVC's condensed consolidated statements of comprehensive income, net of taxes. The following table summarizes the tax effects related to the component of other comprehensive income:
(in millions)Before-tax amount
Tax benefit
Net-of-tax amount
Before-tax amount
Tax (expense) benefit
Net-of-tax amount
Three months ended September 30, 2016  
Three months ended September 30, 2017  
Foreign currency translation adjustments$(7)4
(3)$33
(5)28
Other comprehensive income(7)4
(3)33
(5)28
    
Three months ended September 30, 2015  
Three months ended September 30, 2016  
Foreign currency translation adjustments$(9)12
3
$(7)4
(3)
Other comprehensive loss(9)12
3
(7)4
(3)
    
Nine months ended September 30, 2017:

Foreign currency translation adjustments$135
(25)110
Other comprehensive income135
(25)110

  
Nine months ended September 30, 2016:



Foreign currency translation adjustments$23
13
36
$23
13
36
Other comprehensive loss23
13
36

  
Nine months ended September 30, 2015:

Foreign currency translation adjustments$(89)12
(77)
Other comprehensive loss(89)12
(77)
Other comprehensive income23
13
36

(13) Subsequent Event
Subsequent to September 30, 2017, QVC declared and paid dividends to Liberty in the amount of $300 million.
As of November 9, 2017, zulily had $275 million outstanding on the shared tranche within the Third Amended and Restated Credit Agreement.

I-18

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(13) Subsequent Event
Subsequent to September 30, 2016, QVC declared and paid a dividend to Liberty in the amount of $160 million.
As of October 31, 2016, zulily had $285 million outstanding on the shared tranche within the Third Amended and Restated Credit Agreement.
(14) Guarantor/Non-guarantor Subsidiary Financial Information
The following information contains the condensed consolidating financial statements for the Company, the parent on a stand-alone basis (QVC, Inc.), the combined subsidiary guarantors (Affiliate Relations Holdings, Inc.; Affiliate Investment, Inc.; AMI 2, Inc.; ER Marks, Inc.; QVC Rocky Mount, Inc.; QVC San Antonio, LLC; QVC Global Holdings I, Inc.; and QVC Global Holdings II, Inc.) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.
In connection with the Third Amended and Restated Credit Agreement (refer to note(see notes 1 and 6), QVC International Ltd is no longer a guarantor subsidiary, and is reflected with the combined non-guarantor subsidiaries.
These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Company's condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, such as management fees, royalty revenue and expense, interest income and expense and gains on intercompany asset transfers. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. Certain costs have been partially allocated to all of the subsidiaries of the Company.
With One Q as mentioned in note 11, QVC began allocating certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S. segment, to the QVC-International segment.
The subsidiary guarantors are 100% owned by the Company. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its U.S. subsidiaries, including the guarantors, by dividend or loan. The Company has not presented separate notes and other disclosures concerning the subsidiary guarantors as the Company has determined that such material information is available in the notes to the Company's condensed consolidated financial statements.


I-19

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Balance Sheets
September 30, 2016 
September 30, 2017September 30, 2017 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Assets
Current assets:



Cash and cash equivalents$2
99
218

319
$3
50
290

343
Restricted cash9

2

11
8

3

11
Accounts receivable, net564

230

794
628

260

888
Inventories845

278

1,123
868

296

1,164
Prepaid expenses and other current assets25

25

50
26
1
28

55
Total current assets1,445
99
753

2,297
1,533
51
877

2,461
Property and equipment, net318
65
704

1,087
286
59
653

998
Cable and satellite television distribution rights, net
181
24

205
Television distribution rights, net
78


78
Goodwill4,190

879

5,069
4,190

876

5,066
Other intangible assets, net716
2,049
28

2,793
534
2,048
17

2,599
Other noncurrent assets6

81

87
15

46

61
Investments in subsidiaries3,492
1,064

(4,556)
3,190
64

(3,254)
Total assets$10,167
3,458
2,469
(4,556)11,538
$9,748
2,300
2,469
(3,254)11,263
Liabilities and equity
Current liabilities:



Current portion of debt and capital lease obligations$3

10

13
$3

14

17
Accounts payable-trade395

242

637
458

268

726
Accrued liabilities8
183
435

626
70
157
403

630
Intercompany accounts payable (receivable)479
(203)(276)

270
(1,434)1,164


Total current liabilities885
(20)411

1,276
801
(1,277)1,849

1,373
Long-term portion of debt and capital lease obligations5,105

149

5,254
4,927

146

5,073
Deferred income taxes90
716
(56)
750
73
718
(61)
730
Other long-term liabilities107

46


153
102

25

127
Total liabilities6,187
696
550

7,433
5,903
(559)1,959

7,303
Equity:



QVC, Inc. stockholder's equity3,980
2,762
1,794
(4,556)3,980
3,845
2,859
395
(3,254)3,845
Noncontrolling interest

125

125


115

115
Total equity3,980
2,762
1,919
(4,556)4,105
3,845
2,859
510
(3,254)3,960
Total liabilities and equity$10,167
3,458
2,469
(4,556)11,538
$9,748
2,300
2,469
(3,254)11,263


I-20

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Balance Sheets
December 31, 2015 
December 31, 2016December 31, 2016 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Assets
Current assets:



Cash and cash equivalents$
112
215

327
$2
97
185

284
Restricted cash9

2

11
8

2

10
Accounts receivable, net1,114

256

1,370
958

288

1,246
Inventories714

215

929
726

224

950
Prepaid expenses and other current assets18

24

42
22

24

46
Total current assets1,855
112
712

2,679
1,716
97
723

2,536
Property and equipment, net295
67
640

1,002
317
63
651

1,031
Cable and satellite television distribution rights, net
297
42

339
Television distribution rights, net
167
16

183
Goodwill4,190

845

5,035
4,190

805

4,995
Other intangible assets, net842
2,050
44

2,936
666
2,049
23

2,738
Other noncurrent assets5

62

67
15

47

62
Investments in subsidiaries3,569
2,687

(6,256)
3,389
1,030

(4,419)
Total assets$10,756
5,213
2,345
(6,256)12,058
$10,293
3,406
2,265
(4,419)11,545
Liabilities and equity
Current liabilities:



Current portion of debt and capital lease obligations$3

6

9
$3

11

14
Accounts payable-trade396

262

658
425

253

678
Accrued liabilities229
207
436

872
74
234
461

769
Intercompany accounts payable (receivable)562
1,271
(1,833)

623
(246)(377)

Total current liabilities1,190
1,478
(1,129)
1,539
1,125
(12)348

1,461
Long-term portion of debt and capital lease obligations5,342

51

5,393
5,132

143

5,275
Deferred income taxes94
744
(11)
827
145
707
(74)
778
Other long-term liabilities112

69

181
96

40

136
Total liabilities6,738
2,222
(1,020)
7,940
6,498
695
457

7,650
Equity:



QVC, Inc. stockholder's equity4,018
2,991
3,265
(6,256)4,018
3,795
2,711
1,708
(4,419)3,795
Noncontrolling interest

100

100


100

100
Total equity4,018
2,991
3,365
(6,256)4,118
3,795
2,711
1,808
(4,419)3,895
Total liabilities and equity$10,756
5,213
2,345
(6,256)12,058
$10,293
3,406
2,265
(4,419)11,545


I-21

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Three months ended September 30, 2016 
Three months ended September 30, 2017Three months ended September 30, 2017 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net revenue$1,369
224
662
(307)1,948
$1,419
234
688
(331)2,010
Cost of goods sold847
38
416
(50)1,251
864
37
422
(41)1,282
Gross profit522
186
246
(257)697
555
197
266
(290)728
Operating expenses:



Operating94
61
64
(79)140
106
64
70
(95)145
Selling, general and administrative, including stock-based compensation246

104
(178)172
262

113
(195)180
Depreciation16
1
21

38
17
2
19

38
Amortization62
41
13

116
47
35
9

91

418
103
202
(257)466
432
101
211
(290)454
Operating income104
83
44

231
123
96
55

274
Other (expense) income:



Equity in losses of investee

(2)
(2)
Interest expense, net(52)


(52)(54)


(54)
Foreign currency gain3

2

5
Foreign currency (loss) gain(1)1
4

4
Intercompany interest (expense) income




(1)23
(22)


(49)


(49)(56)24
(18)
(50)
Income before income taxes55
83
44

182
67
120
37

224
Income tax expense(13)(26)(27)
(66)(13)(24)(21)
(58)
Equity in earnings of subsidiaries, net of tax74
24

(98)
112
19

(131)
Net income116
81
17
(98)116
166
115
16
(131)166
Less net income attributable to the noncontrolling interest(9)
(9)9
(9)(12)
(12)12
(12)
Net income attributable to QVC, Inc. stockholder$107
81
8
(89)107
$154
115
4
(119)154


I-22

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Three months ended September 30, 2015 
Three months ended September 30, 2016Three months ended September 30, 2016 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net revenue$1,458
223
641
(315)2,007
$1,369
224
662
(307)1,948
Cost of goods sold905
27
385
(51)1,266
847
38
416
(50)1,251
Gross profit553
196
256
(264)741
522
186
246
(257)697
Operating expenses:    
Operating81
63
72
(72)144
94
61
64
(79)140
Selling, general and administrative, including stock-based compensation271

97
(192)176
246

104
(178)172
Depreciation11
2
20

33
16
1
21

38
Amortization56
40
12

108
62
41
13

116

419
105
201
(264)461
418
103
202
(257)466
Operating income134
91
55

280
104
83
44

231
Other (expense) income:    
Equity in losses of investee

(3)
(3)

(2)
(2)
Interest expense, net(50)
1

(49)(52)


(52)
Foreign currency gain4
7
1

12
3

2

5
Intercompany interest (expense) income(1)(21)22



(47)(14)21

(40)(49)


(49)
Income before income taxes87
77
76

240
55
83
44

182
Income tax expense(23)(25)(38)
(86)(13)(26)(27)
(66)
Equity in earnings of subsidiaries, net of tax90
37

(127)
74
24

(98)
Net income154
89
38
(127)154
116
81
17
(98)116
Less net income attributable to the noncontrolling interest(8)
(8)8
(8)(9)
(9)9
(9)
Net income attributable to QVC, Inc. stockholder$146
89
30
(119)146
$107
81
8
(89)107



I-23

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Nine months ended September 30, 2016 
Nine months ended September 30, 2017Nine months ended September 30, 2017 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net revenue$4,272
688
2,009
(945)6,024
$4,225
679
1,992
(942)5,954
Cost of goods sold2,594
116
1,245
(139)3,816
2,557
106
1,210
(118)3,755
Gross profit1,678
572
764
(806)2,208
1,668
573
782
(824)2,199
Operating expenses:



Operating296
180
204
(252)428
301
182
204
(268)419
Selling, general and administrative, including stock-based compensation773

314
(554)533
743

302
(556)489
Depreciation41
5
57

103
50
6
60

116
Amortization182
125
38

345
167
125
32

324
1,292
310
613
(806)1,409
1,261
313
598
(824)1,348
Operating income386
262
151

799
407
260
184

851
Other (expense) income:    
Equity in losses of investee

(4)
(4)

(3)
(3)
Interest expense, net(159)


(159)(163)
(2)
(165)
Foreign currency gain12

15

27
Foreign currency (loss) gain(4)1
(3)
(6)
Intercompany interest (expense) income(1)1



(3)68
(65)


(148)1
11

(136)(170)69
(73)
(174)
Income before income taxes238
263
162

663
237
329
111

677
Income tax expense(75)(85)(84)
(244)(84)(86)(55)
(225)
Equity in earnings of subsidiaries, net of tax256
106

(362)
299
34

(333)
Net income419
284
78
(362)419
452
277
56
(333)452
Less net income attributable to the noncontrolling interest(28)
(28)28
(28)(33)
(33)33
(33)
Net income attributable to QVC, Inc. stockholder$391
284
50
(334)391
$419
277
23
(300)419


I-24

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Nine months ended September 30, 2015 
Nine months ended September 30, 2016Nine months ended September 30, 2016 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net revenue$4,282
645
1,938
(922)5,943
$4,272
688
2,009
(945)6,024
Cost of goods sold2,632
75
1,153
(139)3,721
2,594
116
1,245
(139)3,816
Gross profit1,650
570
785
(783)2,222
1,678
572
764
(806)2,208
Operating expenses:



Operating253
181
214
(224)424
296
180
204
(252)428
Selling, general and administrative, including stock-based compensation803

292
(559)536
773

314
(554)533
Depreciation32
6
63

101
41
5
57

103
Amortization175
121
45

341
182
125
38

345

1,263
308
614
(783)1,402
1,292
310
613
(806)1,409
Operating income387
262
171

820
386
262
151

799
Other (expense) income:



Equity in losses of investee

(7)
(7)

(4)
(4)
Interest expense, net(157)
(1)
(158)(159)


(159)
Foreign currency gain (loss)12
(6)5

11
Loss on extinguishment of debt(21)


(21)
Foreign currency gain12

15

27
Intercompany interest (expense) income(7)(30)37


(1)1




(173)(36)34

(175)(148)1
11

(136)
Income before income taxes214
226
205

645
238
263
162

663
Income tax expense(63)(101)(79)
(243)(75)(85)(84)
(244)
Equity in earnings of subsidiaries, net of tax251
145

(396)
256
106

(362)
Net income402
270
126
(396)402
419
284
78
(362)419
Less net income attributable to the noncontrolling interest(25)
(25)25
(25)(28)
(28)28
(28)
Net income attributable to QVC, Inc. stockholder$377
270
101
(371)377
$391
284
50
(334)391



I-25

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Condensed Consolidating Statements of Comprehensive Income
Three months ended September 30, 2016 
Three months ended September 30, 2017Three months ended September 30, 2017 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net income$116
81
17
(98)116
$166
115
16
(131)166
Foreign currency translation adjustments(3)
(3)3
(3)
Foreign currency translation adjustments, net of tax28

28
(28)28
Total comprehensive income113
81
14
(95)113
194
115
44
(159)194
Comprehensive income attributable to noncontrolling interest(11)
(11)11
(11)(12)
(12)12
(12)
Comprehensive income attributable to QVC, Inc. stockholder$102
81
3
(84)102
$182
115
32
(147)182

Condensed Consolidating Statements of Comprehensive Income
Three months ended September 30, 2015 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net income$154
89
38
(127)154
Foreign currency translation adjustments3

3
(3)3
Total comprehensive income157
89
41
(130)157
Comprehensive income attributable to noncontrolling interest(11)
(11)11
(11)
Comprehensive income attributable to QVC, Inc. stockholder$146
89
30
(119)146
Condensed Consolidating Statements of Comprehensive Income
Nine months ended September 30, 2016 
Three months ended September 30, 2016Three months ended September 30, 2016 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net income$419
284
78
(362)419
$116
81
17
(98)116
Foreign currency translation adjustments36

36
(36)36
Foreign currency translation adjustments, net of tax(3)
(3)3
(3)
Total comprehensive income455
284
114
(398)455
113
81
14
(95)113
Comprehensive income attributable to noncontrolling interest(46)
(46)46
(46)(11)
(11)11
(11)
Comprehensive income attributable to QVC, Inc. stockholder$409
284
68
(352)409
$102
81
3
(84)102







I-26

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Condensed Consolidating Statements of Comprehensive Income
Nine months ended September 30, 2015 
Nine months ended September 30, 2017Nine months ended September 30, 2017 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net income$402
270
126
(396)402
$452
277
56
(333)452
Foreign currency translation adjustments(77)
(77)77
(77)
Foreign currency translation adjustments, net of tax110

110
(110)110
Total comprehensive income325
270
49
(319)325
562
277
166
(443)562
Comprehensive income attributable to noncontrolling interest(25)
(25)25
(25)(37)
(37)37
(37)
Comprehensive income attributable to QVC, Inc. stockholder$300
270
24
(294)300
$525
277
129
(406)525

Condensed Consolidating Statements of Comprehensive Income
Nine months ended September 30, 2016 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Net income$419
284
78
(362)419
Foreign currency translation adjustments, net of tax36

36
(36)36
Total comprehensive income455
284
114
(398)455
Comprehensive income attributable to noncontrolling interest(46)
(46)46
(46)
Comprehensive income attributable to QVC, Inc. stockholder$409
284
68
(352)409

I-27

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Cash Flows
Nine months ended September 30, 2016 
Nine months ended September 30, 2017Nine months ended September 30, 2017 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Operating activities:



















Net cash provided by operating activities$586
256
7

849
$550
306
51

907
Investing activities:    
Capital expenditures(113)(3)(24)
(140)(54)(2)(27)
(83)
Expenditures for cable and satellite television distribution rights, net
(8)

(8)
Expenditures for television distribution rights
(35)

(35)
Changes in other noncurrent assets6

(8)
(2)(1)
(1)
(2)
Other investing activities(12)
9

(3)
Intercompany investing activities432
137

(569)
385
(1,087)
702

Net cash provided by (used in) investing activities313
126
(23)(569)(153)330
(1,124)(28)702
(120)
Financing activities:    
Principal payments of debt and capital lease obligations(1,295)
(5)
(1,300)(1,785)
(6)
(1,791)
Principal borrowings of debt from senior secured credit facility1,048



1,048
1,574



1,574
Payment of debt origination fees(2)


(2)
Dividends paid to Liberty(427)


(427)
Dividends paid to Liberty Interactive Corporation
(491)


(491)
Dividends paid to noncontrolling interest

(21)
(21)

(22)
(22)
Other financing activities(9)


(9)(10)


(10)
Net short-term intercompany debt (repayments) borrowings(83)(1,474)1,557


(353)(1,188)1,541


Other intercompany financing activities(129)1,079
(1,519)569

186
1,959
(1,443)(702)
Net cash (used in) provided by financing activities(897)(395)12
569
(711)(879)771
70
(702)(740)
Effect of foreign exchange rate changes on cash and cash equivalents

7

7


12

12
Net increase (decrease) in cash and cash equivalents2
(13)3

(8)1
(47)105

59
Cash and cash equivalents, beginning of period
112
215

327
2
97
185

284
Cash and cash equivalents, end of period$2
99
218

319
$3
50
290

343


I-28

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Cash Flows
Nine months ended September 30, 2015 
Nine months ended September 30, 2016Nine months ended September 30, 2016 
(in millions)Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations
Consolidated-
QVC, Inc. and
subsidiaries

Operating activities:    
Net cash provided by operating activities$359
152
282

793
$586
256
7

849
Investing activities:



Capital expenditures(90)(6)(36)
(132)(113)(3)(24)
(140)
Expenditures for cable and satellite television distribution rights, net
(45)(3)
(48)
Decrease (increase) in restricted cash1

(1)

Expenditures for television distribution rights
(8)

(8)
Changes in other noncurrent assets6

(8)
(2)
Other investing activities2



2
(12)
9

(3)
Changes in other noncurrent assets

(1)
(1)
Intercompany investing activities339
382

(721)
432
137

(569)
Net cash provided by (used in) investing activities252
331
(41)(721)(179)313
126
(23)(569)(153)
Financing activities:



Principal payments of debt and capital lease obligations(1,560)
(5)
(1,565)(1,295)
(5)
(1,300)
Principal borrowings of debt from senior secured credit facility1,470



1,470
1,048



1,048
Payment of debt origination fees(3)


(3)(2)


(2)
Payment of bond premium fees(18)


(18)
Dividends paid to Liberty(444)


(444)
Dividends paid to Liberty Interactive Corporation
(427)


(427)
Dividends paid to noncontrolling interest

(20)
(20)

(21)
(21)
Other financing activities(14)


(14)(9)


(9)
Net short-term intercompany debt (repayments) borrowings(884)2,224
(1,340)

(83)(1,474)1,557


Other intercompany financing activities837
(2,695)1,137
721

(129)1,079
(1,519)569

Net cash used in financing activities(616)(471)(228)721
(594)
Net cash (used in) provided by financing activities(897)(395)12
569
(711)
Effect of foreign exchange rate changes on cash and cash equivalents

(4)
(4)

7

7
Net (decrease) increase in cash and cash equivalents(5)12
9

16
Net increase (decrease) in cash and cash equivalents2
(13)3

(8)
Cash and cash equivalents, beginning of period2
123
222

347

112
215

327
Cash and cash equivalents, end of period$(3)135
231

363
$2
99
218

319



I-29

Table of Contents


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; international expansion; new service offerings; revenue growth and subscriber trends; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash and the anticipated impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
customer demand for our products and services and our ability to adapt to changes in demand;
competitor responses to our products and services;
increased digital TV penetration and the impact on channel positioning of our programs;
the levels of online traffic on our websites and our ability to convert visitors into consumers or contributors;
uncertainties inherent in the development and integration of new business lines and business strategies;
our future financial performance, including availability, terms and deployment of capital;
our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;
the ability of suppliers and vendors to deliver products, equipment, software and services;
the outcome of any pending or threatened litigation;
availability of qualified personnel;
changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners, distributors, suppliers and vendors;
domestic and international economic and business conditions and industry trends, includingtrends;
changes in tariffs, trade policy and trade relations following the impact of Brexit (as defined below)2016 U.S. presidential election and the vote by the U.K. to exit from the European Union (“Brexit”);
consumer spending levels, including the availability and amount of individual consumer debt;
advertising spending levels;
changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on demand and IPInternet Protocol television and their impact on home shopping programming;
rapid technological changes;
failure to protect the security of personal information, subjecting us to potentially costly government enforcement actions and/or private litigation and reputational damage;
the regulatory and competitive environment of the industries in which we operate;
threatened terrorist attacks, political unrest in international markets and ongoing military action around the world;
fluctuations in foreign currency exchange rates; and
Liberty Interactive Corporation'sCorporation’s ("Liberty") dependence on our cash flow for servicing its debt and for other purposes.


I-30

Table of Contents


For additional risk factors, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015,2016 as well as Part II, Item 1A1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.2017. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2015.2016.
Overview
QVC, Inc. (unless otherwise indicated or required by the context, the terms "we," "our," "us," the "Company" and "QVC" refer to QVC, Inc. and its consolidated subsidiaries) is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.
In the United States QVC's("U.S."), our televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2 (f/k/a QVC Plus) and Beauty iQ. Our U.S. programming is distributedalso available on QVC.com, our U.S. website; mobile applications via its nationallystreaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, etc.).
We believe that our digital platforms complement our televised shopping program 24 hours per day, 364 days per year. Internationally, QVC's program servicesprograms by allowing consumers to purchase a wide assortment of goods offered on our televised programs, as well as other products that are basedavailable only on our digital platforms. We view e-commerce as a natural extension of our business, allowing us to stream live video and offer on-demand video segments of items recently presented live on our televised programs. Our digital platforms allow shoppers to browse, research, compare and perform targeted searches for products, control the order-entry process and conveniently access their QVC account.
Our international televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), the Republic of Ireland, Italy Japan, and France.
In some of the countries where we operate, our televised shopping programs are broadcast across multiple QVC channels: QVC Beauty & Style and QVC Plus in Germany and QVC distributes its program 24 hours per day with 17 hours of live programming. In Japan,Beauty, QVC distributes live programming 24 hours per day. InExtra, QVC Style and QVC +1 in the U.K., QVC distributes its program 24 hours per day with 16 hours The programming created for most of live programming. In Italy, QVC distributes programming live for 17 hours per daythese markets is also available via streaming video on satellite andour digital terrestrial television and an additional seven hours per day of recorded programming on satellite and seven hours per day of general interest programming on digital terrestrial television. On weekdays, QVC distributes shopping programming in France live for eight hours per day, and distributes an additional 14 hours per day of recorded programming and two hours per day of general interest programming. On weekends, QVC distributes shopping programming in France live for 12 hours per day, and distributes an additional 10 hours per day of recorded programming and two hours per day of general interest programming.
During the year ended December 31, 2015, QVC began reporting its results based on two operating segments: QVC-U.S. and QVC-International, as a result of the One Q Reorganization Plan ("One Q"). The One Q organizational structure is intended to allow the Company to better leverage its global scale and capabilities, to enhance its competitive position and to create operational efficiencies. Beginning in the first quarter of 2016, QVC began allocating certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S. segment,platforms. Our international business employs product sourcing teams who select products tailored to the QVC-International segment. These management cost allocations are related to certain functions such as merchandising, commerce platforms, information technology, human resources, legal, finance, brand and communications, corporate development and administration that support allinterests of QVC’s operations. For the three and nine months ended September 30, 2016, these costs totaled approximately $8 million and $24 million, respectively.each local market.
The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui") for a television and multimedia retailing service in Japan. QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the nine months ended September 30, 20162017 and 2015,2016, QVC-Japan paid dividends to Mitsui of $21$22 million and $20$21 million, respectively.
The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. Live programming is distributed 15 hours per day and recorded programming is distributed nine hours per day. This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.


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Table of Contents


The Company is an indirect wholly ownedwholly-owned subsidiary of Liberty, Interactive Corporation ("Liberty"), which owns interests in a broad range of digital commerce businesses.businesses, and is attributed to Liberty's QVC Group. The QVC Group common stock (Nasdaq: QVCA and QVCB), tracks the economic performance, assets and liabilities of the QVC Group. The QVC Group tracks the Company, zulily, llc (as of October 1, 2015)("zulily") and Liberty's 38% equity interest in HSN, Inc. ("HSN"), one of the Company's two closest televised shopping competitors, along with cash and certain liabilities. On July 6, 2017, Liberty announced plans to acquire the remaining interest in HSN, which would make it a wholly-owned subsidiary of Liberty following the closing. On April 4, 2017, Liberty entered into an agreement with General Communication, Inc. ("GCI"), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty, whereby Liberty will acquire GCI through a reorganization in which certain assets and liabilities attributed to Liberty’s Ventures Group will be contributed to GCI in exchange for a controlling interest in GCI. Liberty will then effect a tax-free separation of its controlling interest in the combined company, leaving QVC Group common stock as the only outstanding common stock of Liberty. Neither the proposed transactions involving GCI nor the acquisition of HSN is conditioned on the completion of the other, and no assurance can be given as to which of these transactions will be completed first. The QVC Group does not represent a separate legal entity; rather, it represents those businesses, assets and liabilities that are attributed to that group.
On October 1, 2015, Liberty acquired all of the outstanding shares of zulily, inc. ("zulily") (now known as zulily, llc) and QVC declared and paid a dividend to Liberty in the amount of $910 million with funds drawn from the Company’s credit facility to support Liberty’s purchase.. zulily is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched each day for a limited time period. zulily is attributed to the QVC Group and the Company believes that its business is complementary to the Company. zulily is not part of the results of operations or financial position of QVC presented in the accompanying condensed consolidated financial statements. During each of the nine months ended September 30, 2017 and 2016, QVC and zulily engaged in multiple transactions relating to sales, sourcing of merchandise, marketing initiatives, and business advisory services.services and software development. The gross value of these transactions totaled less thanapproximately $7 million and $11 million, respectively, which did not have a material impact on QVC's financial position, results of operations, or liquidity.
On June 23, 2016, QVC engages with CommerceHub, Inc. ("CommerceHub"amended and restated its senior secured credit facility (the "Third Amended and Restated Credit Agreement"), which was an approximately 99% owned subsidiary of Liberty prior increasing the revolving credit facility from $2.25 billion to $2.65 billion as explained further in note 6 to the completion of its spinoff from Liberty in July 2016, to handle communications between QVC and certain of its vendors for drop ship sales and returns. CommerceHub is not part of the results of operations or financial position of QVC presented in theseCompany's condensed consolidated financial statements. During eachThe Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or zulily. Under the terms of the nine months endedThird Amended and Restated Credit Agreement, QVC and zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of zulily. As of September 30, 2016,2017, there was $300 million borrowed by zulily on the $400 million tranche of the Third Amended and 2015, QVC paid CommerceHub forRestated Credit Agreement, none of which the related services totaling less than $2 million, which did not have a material impactCompany expects to repay on QVC's financial position, resultsbehalf of operations, or liquidity. As of July 22, 2016, Liberty completed the spin-off of CommerceHub. As a result, Liberty and CommerceHub are now separate publicly traded companies.zulily.
Strategies and challenges of business units
QVC's goal is to become the preeminent global multimedia shopping community for people who love to shop, and to offer a shopping experience that is as much about entertainment and enrichment as it is about buying. QVC's objective is to provide an integrated shopping experience that utilizes all forms of media including television, the Internet and mobile devices. QVC intends to employ several strategies to achieve these goals and objectives. Among these strategies are to (i) extend the breadth, relevance and exposure of the QVC brand; (ii) source products that represent unique quality and value; (iii) create engaging presentation content in televised programming, mobile and online; (iv) leverage customer loyalty and continue multi-platform expansion; and (v) create a compelling and differentiated customer experience. In addition, QVC expects to expand globally by leveraging its existing systems, infrastructure and skills in other countries around the world.
QVC's future net revenue growth will primarily depend on international expansion, sales growth from e-commerce and mobile platforms, additions of new customers from households already receiving QVC's television programming and increased spending from existing customers. QVC's future net revenue may also be affected by (i) the willingness of cable television and direct-to-home satellite system operators to continue carrying QVC's programming service; (ii) QVC's ability to maintain favorable channel positioning, which may become more difficult due to governmental action or from distributors converting analog customers to digital; (iii) changes in television viewing habits because of personal video recorders, video-on-demand and Internet video services; and (iv) general economic conditions.

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The prolonged economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could adversely affect demand for our products and services since a substantial portion of our revenue is derived from discretionary spending by individuals, which typically falls during times of economic instability. Global financial markets continue to experience disruptions, including increased volatility and diminished liquidity and credit availability. If economic and financial market conditions in the U.S. or other key markets, including Japan and Europe, remain uncertain, persist, or deteriorate further, our customers may respond by suspending, delaying, or reducing their discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect revenue. Accordingly, our ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline. Such weak economic conditions may also inhibit our expansion into new European and other markets. We currently are unable to predict the extent of any of these potential adverse effects.


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On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the European Union (the "E.U."), commonly referred to as “Brexit.” As a result of the referendum, the global markets and currencies have been adversely impacted, including a sharp decline in the value of the U.K. Pound Sterling as compared to the U.S. dollar.Dollar. Volatility in exchange rates is expected to continue in the short term as the U.K. negotiates its exit from the E.U. In the longer term, any impact from Brexit on us will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results. On March 29, 2017, the U.K. invoked Article 50 of the Treaty of Lisbon, which is the first step of the U.K.’s formal exit from the EU. This started the two-year window in which the U.K. and the European Commission can negotiate future terms for imports, exports, taxes, employment, immigration and other areas, ending in the exit of the U.K. from the E.U.
The current President of the U.S. has expressed apprehension towards existing trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership, and suggested that the U.S. would renegotiate or withdraw from these agreements. He also raised the possibility of significantly increasing tariffs on goods imported into the United States, particularly from China and Mexico. On January 23, 2017, the President of the U.S. signed a presidential memorandum to withdraw the U.S. from the Trans-Pacific Partnership. This and the other proposed actions, if implemented, could adversely affect our business because we sell imported products.

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Results of Operations
QVC's operating results were as follows:
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2016
2015
2017
2016
2017
2016
Net revenue$1,948
2,007
6,024
5,943
$2,010
1,948
5,954
6,024
Costs of goods sold1,251
1,266
3,816
3,721
1,282
1,251
3,755
3,816
Gross profit697
741
2,208
2,222
728
697
2,199
2,208
Operating expenses:    
Operating140
144
428
424
145
140
419
428
Selling, general and administrative, excluding stock-based compensation164
167
509
512
171
164
466
509
Adjusted OIBDA393
430
1,271
1,286
412
393
1,314
1,271
Stock-based compensation8
9
24
24
9
8
23
24
Depreciation38
33
103
101
38
38
116
103
Amortization116
108
345
341
91
116
324
345
Operating income231
280
799
820
274
231
851
799
Other (expense) income:    
Equity in losses of investee(2)(3)(4)(7)
(2)(3)(4)
Interest expense, net(52)(49)(159)(158)(54)(52)(165)(159)
Foreign currency gain5
12
27
11
Loss on extinguishment of debt


(21)
Foreign currency gain (loss)4
5
(6)27

(49)(40)(136)(175)(50)(49)(174)(136)
Income before income taxes182
240
663
645
224
182
677
663
Income tax expense(66)(86)(244)(243)(58)(66)(225)(244)
Net income116
154
419
402
166
116
452
419
Less net income attributable to the noncontrolling interest(9)(8)(28)(25)(12)(9)(33)(28)
Net income attributable to QVC, Inc. stockholder$107
146
391
377
$154
107
419
391
Net revenue
Net revenue by segment was as follows:
 Three months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2016
2015
QVC-U.S.$1,338
1,420
4,173
4,168
QVC-International610
587
1,851
1,775
Consolidated QVC$1,948
2,007
6,024
5,943


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 Three months ended September 30, Nine months ended September 30, 
(in millions)2017
2016
2017
2016
QVC-U.S.$1,374
1,338
4,111
4,173
QVC-International636
610
1,843
1,851
Consolidated QVC$2,010
1,948
5,954
6,024
QVC's consolidated net revenue increased 3.2% and decreased 2.9% and increased 1.4%1.2% for the three and nine months ended September 30, 20162017, respectively, as compared to the corresponding periods in the prior year. The three month decreaseincrease in net revenue of $59$62 million was primarily comprised of an increase of $199 million due to a 4.9%9.2% increase in units sold. This was offset by a decrease of $92 million due to a 3.9% decrease in average selling price per unit ("ASP") attributing $111, an increase in estimated product returns of $26 million, a $8 million due to a decrease in shipping and handling revenue, and a $3$7 million decrease due to a decrease in units sold. The decrease was partially offset by a decrease of $50 million in estimated product returns and $13 million in favorable foreign currency rates primarily in Japan which was slightly offset by unfavorable foreign currency rates, and a $4 million decrease in the U.K.miscellaneous income. The nine month increasedecrease in net revenue of $81$70 million was primarily comprised of $203$206 million due to a 3.0%2.9% decrease in ASP, $65 million due to unfavorable foreign currency rates, a decrease in shipping and handling revenue of $20 million, and a $12 million decrease in miscellaneous income. The decrease was offset by a $212 million increase in units sold and a $68$21 million decrease in estimated product returns, $23 million in favorable foreign currency rates in Japan which was slightly offset by unfavorable foreign currency rates in the U.K and a $5 million increase related to product sales with zulily. The increase was partially offset by $207 million due to a 3.0% decrease in ASP and a $14 million decrease in shipping and handling revenue.returns.

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During the three and nine months ended September 30, 20162017 and 2015,2016, the changes in revenue and expenses were affected by changes in the exchange rates for the Japanese Yen, the Euro and the U.K. Pound Sterling. In the event the U.S. Dollar strengthens against these foreign currencies in the future, QVC's revenue and operating cash flow will be negatively affected. Our product margins in the U.K. aremay continue to be under pressure due to the rapid devaluation of the U.K. Pound Sterling, which we will tryattempt to offset this as much as possiblereduce our exposure through pricing and vendor negotiations.negotiations, as Brexit negotiations progress.
In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for all countries where the functional currency is not the U.S. dollar.Dollar. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the prior period's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. When we refer to constant currency operating results, this means operating results without the impact of the currency exchange rate fluctuations. The disclosure of constant currency amounts or results permits investors to understand better QVC’s underlying performance without the effects of currency exchange rate fluctuations.
The percentage changeincrease (decrease) in net revenue for each of QVC's segments in U.S. Dollars and in constant currency was as follows:

Three months ended September 30, 2016 Nine months ended September 30, 2016 Three months ended September 30, 2017 Nine months ended September 30, 2017 

U.S. Dollars
Foreign Currency Exchange Impact
Constant currency
U.S. Dollars
Foreign Currency Exchange Impact
Constant currency
U.S. DollarsForeign Currency Exchange ImpactConstant currencyU.S. DollarsForeign Currency Exchange ImpactConstant currency
QVC-U.S.(5.8)%%(5.8)%0.1%%0.1%2.7% %2.7%(1.5)% %(1.5)%
QVC-International3.9 %2.1%1.8 %4.3%1.3%3.0%4.3%(1.0)%5.3%(0.4)%(3.4)%3.0 %
QVC-U.S. net revenue declineincrease for the three months ended September 30, 20162017 was primarily due to a 6.7%8.7% increase in units shipped. The increase was offset by a decrease of 3.5% in ASP, a 1.4%$19 million increase in estimated product returns, a $11 million decrease in shipping and handling revenue, and a $5 million decrease in miscellaneous income. QVC-U.S. experienced a system outage during the second quarter of 2017 which resulted in an estimated 1% shift in net revenue to the third quarter. The increase in returns is driven by an increase in sales during the third quarter. Additionally, the Company experienced a decrease in shipping and handling revenue per unit due to promotional offers. For the three months ended September 30, 2017, QVC-U.S. experienced shipped sales increases in apparel, electronics, beauty and accessories offset by decreases in jewelry and home. For the nine months ended September 30, 2017, QVC U.S. net revenue decline was due to a decrease of 3.2% in ASP, a $24 million decrease in shipping and handling revenue, and an $11 million decrease in miscellaneous income. The decrease was offset by a 2.1% increase in units shipped, and a 6.6%$30 million decrease in estimated product returns. The decrease in net shipping and handling revenue. The declinerevenue was offset by favorable impacta result of a decrease in estimated product returns of $50 millionshipping and $3 million of product sales with zulily. QVC-US experienced shipped sales decline in electronics, beauty, jewelry and accessories offset by increases in home and apparel.handling revenue per unit from promotional offers. The decrease in estimated product returns was primarily due to a decrease in sales and an overall lower return rate primarily in accessories, apparel and jewelry.reduced sales. For the nine months ended September 30, 2016,2017, QVC-U.S. net revenue growth was primarily due to a 3.0% increase in units shipped and a favorable impact in estimated product returns. The increases were partially offset by a 4.2% decrease in ASP and a 4.5% decrease in net shipping and handling revenue. QVC-US experienced shipped sales growthincreases in apparel, homebeauty and accessorieselectronics offset by decreases in jewelry, electronicshome and beauty. The decrease in estimated product returns was primarily due to a decrease in the return rate and net adjustments to prior period estimates based on lower actual experience. For the three and nine months ended September 30, 2016, net shipping and handling revenue decreased in the U.S. primarily due to the decrease in shipping and handling rates per unit from promotional offers.
Beginning in early June, QVC-U.S. sales began to experience significant headwinds, which have continued. Since early October, sales declines have moderated into the low to mid single digits, as compared to the corresponding prior year period. We have developed and are implementing a number of strategies and initiatives intended to reverse the negative trends and we are optimistic, although there is no guarantee, that these actions will have a positive effect.


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accessories.
QVC-International net revenue growth in constant currency for the three and nine months ended September 30, 20162017 was primarily due to a 2.1% and 3.0%9.9% increase respectively, in units shipped, mainlydriven by increases in Japan, Germany, the U.K., and France, offset by a decrease in Italy. There was a $3 million increase in shipping and handling revenue, primarily driven by Japan and Germany. This was offset by a 4.5% decrease in ASP, primarily driven by Japan and Germany, and Italy, and specificallya $7 million increase in estimated product returns driven by all markets except for the nine months ended September 30, 2016, the increase was slightly offset by Japan. For the three months ended September 30, 2016,2017, QVC-International experienced shipped sales growth in beauty, accessories and electronics offset by decreasesconstant currency in apparel, accessories, home and jewelry,beauty with declines in electronics and jewelry. Net revenue growth in constant currency for the nine months ended September 30, 2016, QVC-International experienced2017 was primarily due to a 4.9% increase in units shipped, sales growthdriven by increases in Japan, Germany, and France, offset by decreases in units shipped in the U.K. and Italy. There was a $4 million increase in shipping and handling revenue, primarily driven by Japan. This was offset by a 2% decrease in ASP, primarily driven in Japan and Germany offset by increases in the U.K. and Italy and France, and a $9 million increase in estimated product returns, driven by all categoriesmarkets except jewelry and apparel.for Japan. For the nine months ended September 30, 2016, the net revenue increase was partially offset by an increase2017, QVC-International experienced shipped sales growth in estimated product returns primarilyconstant currency in Germanyapparel, beauty and the U.K. mainly due to an increaseaccessories with declines in units shipped.electronics, jewelry and home.
Gross profit
QVC's gross profit percentage was 36.2% and 36.9% for the three and nine months ended September 30, 2017, respectively, compared to 35.8% and 36.7% for the three and nine months ended September 30, 2016, respectively, compared to 36.9% and 37.4% for2016. For the three and nine months ended September 30, 2015, respectively. For the three and nine months ended September 30, 2016,2017, the gross profit percentage decreasedincreased primarily due to a decreasean increase in product margins. The increase was offset by an unfavorable inventory obsolescence provision in the U.S. and increased freight costs. The increase in freight and warehouse costs was primarily due to increased units shipped in both segments. For the nine months ended September 30, 2016,2017, the decrease was also attributablegross profit percentage increased primarily due to higher freight costs. The decrease was partially offset by a favorable inventory obsolescence provision in both periods in the U.S. For the nine months ended September 30, 2016, the QVC-International decrease inincreased product margins was partially offset by improved product margins in Japan.margins.

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Operating expenses
QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses, credit card processing fees and telecommunications expenses. Operating expenses decreased $4increased $5 million or 2.8%3.6% and increased $4decreased $9 million or 0.9%2.1% for the three and nine months ended September 30, 20162017 as compared to the three and nine months ended September 30, 2015,2016, respectively.
For the three months ended September 30, 2016,2017, operating expenses decreasedincreased primarily due to a $2$3 million decreaseincrease in customer service expensescredit card processing fees and a $3 million increase in commissions offset by $1 million decrease in both creditfrom favorable foreign currency exchange rates. Credit card fees and commissions partially offset by $2 million in unfavorable foreign currency rates mainly in Japan offset partially by the U.K. The decrease in customer service expense was mainly due to a decrease in calls handled internationally. The decrease in credit card fees wasincreased primarily due to the decreaseincrease in sales for the period in the U.S. The decrease in commissions expense was primarily duesales. In addition, credit card interchange processing fees have increased compared to the decrease in sales on commission in the U.S. partially offset by increased carriage in Japan and the U.K.three months ended September 30, 2016.
For the nine months ended September 30, 2016,2017 operating expenses increaseddecreased primarily due to $3a $6 million decrease in unfavorablecustomer service expenses related to lower call volumes in the U.S., favorable foreign currency exchange rates mainlyand offset somewhat by higher credit card fees primarily in Japan offset partially by the U.K. and a $3 million increase in commissions. The increase in commissions expense was primarily due to increased carriage in Japan and the U.K.U.S.
Selling, general and administrative expenses (excluding stock-based compensation)
QVC's SG&Aselling, general, and administrative expenses (excluding stock-based compensation) include personnel, information technology, provision for doubtful accounts, production costs, credit card income, marketing and advertising expenses. Such expenses decreased $3increased $7 million for both the three months ended September 30, 2017, and decreased $43 million for the nine months ended September 30, 2016. SG&A2017, compared to the same periods in the prior year. Such expenses increased from 8.3%8.4% to 8.4%8.5% and decreased from 8.6%8.4% to 8.4%7.8%, as a percentage of net revenue, as compared to the three and nine month periodsmonths ended September 30, 2015, respectively, as a result of a variety of reasons.2016, respectively.
For the three months ended September 30, 2016,2017, the decreaseincrease was primarily due to reducedan increase in personnel costs of approximately $12$10 million and an increase of credit card income of $2 million which was partially offset by increases in software expensefranchise taxes of $4 million marketingoffset by a decrease in bad debt expense of $3 million, external services of $3$5 million and approximately $1a $2 million decrease in unfavorable foreign currency rates mainly in Japan partially offset by the U.K.marketing expenses. The decreaseincrease in personnel costs was primarily due to a decreasean increase in bonus of $14 million and benefits of $7 million which was partiallyexpense offset by decreases in severance of approximately $9 millionexpense and salaries and wages, mostly in the U.S. Credit card income increasedThe decrease in bad debt expense was primarily related to lower default rates experienced from prior periods mostly associated with the Easy-Pay program in the U.S. The decrease in marketing expenses is primarily related to discontinuing the naming rights to the Chiba Marine Stadium in Japan.
For the nine months ended September 30, 2017, the decrease was primarily due to morea decrease in bad debt expense of $26 million, $8 million from favorable economicsforeign currency rates, a $7 million increase in credit card income, a $4 million decrease in marketing expenses, and a $5 million decrease in various other expenses offset by an increase in personnel cost of $7 million. The decrease in bad debt expense was primarily related to lower default rates experienced from prior periods mostly associated with the Q Card portfolioEasy-Pay program in the U.S. The increase in software expensecredit card income was mostly due to software licensing and software maintenance. Marketing expense increasedthe favorable economics of the QVC-branded credit card portfolio in the U.S. The decrease in marketing expenses is primarily due to cancellation costs related to discontinuing the naming rights to the Chiba Marine Stadium in Japan. The increase in external services was primarily due to internal control enhancements and the establishment of a global business service center.


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For the nine months ended September 30, 2016, the decrease was primarily due to reduced personnel costs of $40 million and an increase in credit card income of $4 million which was offset partially by increases in bad debt expense of $20 million, software expense of $7 million, $6 million for both external services and marketing expense and approximately $2 million in unfavorable foreign currency rates mainly in Japan offset partially by the U.K. The decrease in personnel costs was primarily due to a decrease in bonuses of $30 million and wages and benefits of $11 million mostly in the U.S. The increase in bad debt expense was primarily related to an increase in Easy-Pay sales penetrationbonus expense offset by decreases in severance expenses and higher default rates experienced related to the Easy-Pay program in the U.S. The increase in software expense was mainly due to an increase in software licensingsalaries and software maintenance. The increase in external services was primarily due to internal control enhancements, outside legal services and the establishment of a global business service center. Marketing expense increased primarily due to cancellation costs related to discontinuing the naming rights to the Chiba Marine Stadium in Japan and France launch marketing expenses.wages.
Stock-based compensation
Stock-based compensation includes compensation related to options and restricted stock units granted for shares of Liberty's tracking stock to certain officers and employees. QVC recorded $8$9 million and $9$8 million of stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively, and 2015, respectively,$23 million and $24 million of stock-based compensation expense for each of the nine months ended September 30, 2017 and 2016, and 2015, respectively.

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Depreciation and amortization
Depreciation and amortization consisted of the following:
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, 
(in millions)2016
2015
2016
2015
2017
2016
2017
2016
Affiliate agreements$37
36
110
109
$25
37
98
110
Customer relationships43
43
128
128
28
43
112
128
Acquisition related amortization80
79
238
237
53
80
210
238
Property and equipment38
33
103
101
38
38
116
103
Software amortization26
19
73
72
24
26
70
73
Channel placement amortization and related expenses10
10
34
32
14
10
44
34
Total depreciation and amortization$154
141
448
442
$129
154
440
448
For the three and nine months ended September 30, 2016, total depreciation and2017, acquisition related amortization increasedexpense decreased primarily due to expensethe end of the useful lives of certain affiliate agreements and customer relationships established at the time of Liberty’s acquisition of QVC in 2003. This was offset by an increase in channel placement amortization related to the additions ataddition of Beauty iQ in the west coastU.S. For the nine months ended September 30, 2017, the amortization decrease mentioned above was offset by an increase in depreciation related to the addition of the California distribution center.center in the third quarter of 2016.
Equity in losses of investee
The losses were associated with our joint venture in China that is accounted for as an equity method investment.
Interest expense, net
For the three and nine months ended September 30, 2016,2017, consolidated interest expense, net increased $3$2 million or 6.1%3.8% and increased $1$6 million or 0.6%3.8%, respectively, as compared to the corresponding period in the prior year. For the three and nine months ended September 30, 2017, interest expense, net increased primarily due to income related to the ineffective portion of a hedge of a net investment in the prior year.
Foreign currency gain (loss)
Certain loans between QVC and its subsidiaries are deemed to be short-term in nature, and accordingly, the translation of these loans is recorded in the accompanying condensed consolidated statements of operations. For the three and nine months ended September 30, 2016,2017, the change in foreign currency gain (loss) was also due to variances in interest and operating payables balances between QVC and its international subsidiaries denominated in the currency of the subsidiary and the effects of currency exchange rate changes on those balances.


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Loss on extinguishment of debt
On April 15, 2015, QVC completed the redemption of $500 million principal amount of its 7.375% Senior Secured Notes due 2020, whereby holders received consideration of $1,036.88 for each $1,000 of principal tendered. As a result of the redemption, the Company recorded an extinguishment loss in the condensed consolidated statements of operations of $21 million for the nine month period ended September 30, 2015.
Income taxes
Our effective tax rate was 36.3%25.9% and 36.8%33.2% for the three and nine months ended September 30, 2016, respectively, and our2017. These rates differed from the U.S. federal income tax rate of 35% primarily due to the impact of discrete permanent differences related to foreign currency losses realized for tax purposes offset somewhat by state tax expense. Our effective tax rate for the three and nine months ended September 30, 20152016 was 35.8%36.3% and 37.7%36.8%, respectively. These rates differ from the U.S. federal income tax rate of 35.0% primarily due to state tax expense.

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Adjusted Operating Income before Depreciation and Amortization (Adjusted OIBDA)
QVC defines Adjusted OIBDA as net revenue less cost of goods sold, operating expenses and selling, general and administrative expenses (excluding stock-based compensation). QVC's chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate the businesses and make decisions about allocating resources among the businesses. QVC believes that this is an important indicator of the operational strength and performance of the businesses, including the ability to service debt and fund capital expenditures. In addition, this measure allows QVC to view operating results, perform analytical comparisons and perform benchmarking among its businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation, amortization and stock-based compensation that are included in the measurement of operating income pursuant to U.S. generally accepted accounting principles ("U.S. GAAP"). Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.
The primary material limitations associated with the use of Adjusted OIBDA as compared to U.S. GAAP results are (i) it may not be comparable to similarly titled measures used by other companies in the industry, and (ii) it excludes financial information that some may consider important in evaluating QVC's performance. QVC compensates for these limitations by providing disclosure of the difference between Adjusted OIBDA and U.S. GAAP results, including providing a reconciliation of Adjusted OIBDA to U.S. GAAP results, to enable investors to perform their own analysis of QVC's operating results. ReferSee to Notenote 11 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to income before income taxes.
Seasonality
QVC's business is seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday shopping. In recent years, QVC has earned, on average, between 22% and 23%24% of its revenue in each of the first three quarters of the year and between 30% and 32% of its revenue in the fourth quarter of the year.
Financial Position, Liquidity and Capital Resources
General
Historically, QVC's primary sources of cash have been cash provided by operating activities and borrowings. In general, QVC uses this cash to fund its operations, make capital purchases, make payments to Liberty, make interest payments and minimize QVC's outstanding senior secured credit facility balance.
As of September 30, 2016,2017, substantially all of QVC's cash and cash equivalents were invested in AAA rated money market funds and time deposits with banks rated equal to or above A.
Senior Secured Notes
All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to theQVC's senior secured credit facility. The interest on all of QVC's senior secured notes is payable semi-annually.


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Senior Secured Credit Facility
On June 23, 2016, QVC entered into a third amendedthe Third Amended and restated senior secured credit agreementRestated Credit Agreement with zulily as borrowers (collectively, the “Borrowers”), which is a multi-currency facility that provides for a $2.65 billion revolving credit facility with a $300 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or zulily with an additional $50 million sub-limit for standby letters of credit. The remaining $2.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter periods (the “Consolidated“Combined Consolidated Leverage Ratio”). Borrowings that are LIBORLondon Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and1.75%and 1.75% depending on the Borrowers’ combined consolidated leverage ratio.Combined Consolidated Leverage Ratio. Because the calculation of the consolidated leverage ratioCombined Consolidated Leverage Ratio was revised to include zulily, the effective interest rate margins, on the date that the Third Amended and Restated Credit Agreement was entered into, decreased from the interest rate margins under the previous bank credit facility. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if zulily ceases to be controlled by Liberty, Interactive Corporation, all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Any amounts prepaid on the revolving facility may be reborrowed. Payment of loans may be accelerated following certain customary events of default. The senior secured credit facility is secured by the capital stock of QVC.
QVC had $1,024.8$950 million, including the remaining portion of the $400 million tranche that zulily may also borrow on, available under the terms of the senior secured credit facilityThird Amended and Restated Credit Agreement at September 30, 2016.2017. The interest rate on the senior secured credit facilityThird Amended and Restated Credit Agreement was 1.9%2.7% at September 30, 2016.2017.
The purpose of the amendment was to, among other things, extend the maturity of ourthe Company's senior secured credit facility, to June 23, 2021, provide zulily the opportunity to borrow on the senior secured credit facility (see Notenotes 1 and 6 to the accompanying condensed consolidated financial statements), and lower the interest rate on borrowings. The payment and performance of the Borrowers’ obligations under the Third Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement). Further, the borrowings under the Third Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of the capital stock of QVC. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and zulily are also guaranteed by each of zulily’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of zulily’s equity interests.
The Third Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and zulily and each of their respective restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting the Company’s consolidated leverage ratio and the Borrowers’ combined consolidated leverage ratio which is defined in the senior secured credit facility as the ratio ofCombined Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter period.Leverage Ratio.
Other Debt Related Information
QVC was in compliance with all of its debt covenants at September 30, 2016.2017.
During the quarter, there were no significant changes to QVC's debt credit ratings.
There are no restrictions under theQVC's debt agreements on QVC's ability to pay dividends or make other restricted payments if QVC is not in default on its senior secured notes or senior secured credit facility, and as long as both QVC's consolidated leverage ratio, and a combined consolidated leverage ratioCombined Consolidated Leverage Ratio for both QVC and zulily, would be no greater than 3.5 to 1.0. As a result, Liberty will, in many instances, be permitted to rely on QVC's cash flow for servicing Liberty's debt and for other purposes, including repurchases of Liberty's common stock, or to fund acquisitions or other operational requirements of Liberty and its subsidiaries. These events may deplete QVC's equity or require QVC to borrow under the senior secured credit facility, increasing QVC's leverage and decreasing liquidity. QVC has made significant distributions to Liberty in the past.


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Interest Rate Swap Arrangements
On June 15,During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, 2016,2017, the fair value of the swap instrument was in a net asset position of less than $1approximately $2 million which was included in other noncurrent assets. A 1% change in the one-month U.S. Libor rate (floating portion of the interest rate swap) will result in a change in the value of the swap instrument less than $1 million.
Additional Cash Flow Information
During the nine months ended September 30, 2017, QVC's primary uses of cash were $1,791 million of principal payments on debt and capital lease obligations, $491 million of dividend payments to Liberty, $118 million of capital and television distribution rights expenditures and $22 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,574 million of principal borrowings from the senior secured credit facility and $907 million of cash provided by operating activities. As of September 30, 2017, QVC's cash and cash equivalents balance (excluding restricted cash) was $343 million.
During the nine months ended September 30, 2016, QVC's primary uses of cash were $1,300 million of principal payments on debt and capital lease obligations, $427 million of dividends to Liberty, $148 million of capital and cable and satellite television distribution rights expenditures and $21 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,048 million of principal borrowings from the senior secured credit facility and $849 million of cash provided by operating activities. As of September 30, 2016, QVC's cash and cash equivalents balance (excluding restricted cash) was $319 million.
During the nine months ended September 30, 2015, QVC's primary uses of cash were $1,565 million of principal payments on debt and capital lease obligations, $444 million of dividends to Liberty, $180 million of capital and cable and satellite television distribution rights expenditures, $20 million in dividend payments from QVC-Japan to Mitsui, and $18 million of bond premium fees. These uses of cash were funded primarily with $1,470 million of principal borrowings from the senior secured credit facility and $793 million of cash provided by operating activities. As of September 30, 2015, QVC's cash and cash equivalents balance (excluding restricted cash) was $363 million.
The change in cash provided by operating activities for the nine months ended September 30, 20162017 compared to the previous year was primarily due to variancesthe increase in accounts receivablenet income, excluding non-cash charges such as depreciation, amortization, and inventories, offsetstock-based compensation. Cash provided by variancesoperating activities is also subject to changes in accrued liabilities, accounts payableworking capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory management and prepaid expenses. The variance in accounts receivable is primarily due to decreases in the Easy-Pay receivable balance. The variance in inventories is primarily due to the level of increases in inventory balances globally. The variances in accrued liabilities and accounts payable balances are primarily due tocategory expansion, the timing of cash receipts and payments, to vendors. The variancevendor payment terms, and fluctuations in prepaid expenses is primarily due to increases in prepaid contracts in the U.S.foreign exchange rates.
As of September 30, 2016, $1982017, $263 million of the $319$343 million in cash and cash equivalents was held by foreign subsidiaries. Cash in foreign subsidiaries is generally accessible, but certainavailable for domestic purposes with no significant tax consequences may reduceupon repatriation to the net amount of cash we are able to utilize for U.S. purposes. QVC accrues taxes on the unremitted earnings of its international subsidiaries. QVC-Japan holds more than one-halfApproximately 60% of thethis foreign cash balance aswas that of September 30, 2016.QVC-Japan. QVC owns 60% of QVC-Japan and shares all profits and losses with the 40% minority interest holder, Mitsui. We believe that we currently have appropriate legal structures in place to repatriate foreign cash as tax-efficiently as possible and meet the business needs of QVC.
Other
Capital expenditures spending in 2016 are2017 is expected to be between $185$150 and $195$160 million, including $140$83 million already expended.

Refer to the chart under the "Off-balance Sheet Arrangements and Aggregate Contractual Obligations" section below for additional information concerning the amount and timing of expected future payments under QVC's contractual obligations at September 30, 2016.2017.
QVC has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible QVC may incur losses upon the conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, that may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.


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On June 23, 2016, the U.K. held a referendum in which voters approved an exit from the European Union ("E.U."), commonly referred to as “Brexit”. As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes may cause disruptions to and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations.
Off-balance Sheet Arrangements and Aggregate Contractual Obligations
Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our contractual obligations at September 30, 20162017 is summarized below:

Payments due by period Payments due by period 
(in millions)Remainder of 2016
2017
2018
2019
2020
Thereafter
Total
Remainder of 2017
2018
2019
2020
2021
Thereafter
Total
Long-term debt (1)$


400

4,720
5,120
$

400

1,390
3,150
4,940
Interest payments (2)29
200
200
193
187
1,078
1,887
31
207
200
195
173
908
1,714
Capital lease obligations (including imputed interest)3
12
15
15
11
23
79
4
16
16
13
12
18
79
Operating lease obligations5
20
17
14
10
80
146
5
18
14
11
9
71
128
Build to suit lease
5
6
6
6
73
96
1
6
6
6
6
67
92
(1) Amounts exclude capital lease obligations and the issue discounts on theour 3.125%, 4.375%, 4.45%4.85%, 4.85%4.45%, 5.45% and 5.95% Senior Secured Notes. Additionally, the presentation assumes there is no amount outstanding on the $140 million commitment under our senior secured credit facility that matures on March 9, 2020.
(2) Amounts (i) are based on the terms of QVC's senior secured credit facility and senior secured notes, (ii) assumes the interest rates on the floating rate debt remain constant at the rates in effect as of September 30, 2016,2017, (iii) assumes that our existing debt is repaid at maturity and (iv) excludes capital lease obligations.
Our purchase obligations did not materially change as of September 30, 2016.2017.
Recent Accounting Pronouncements
On May 28, 2014, the Financial Accounting Standards Board ("FASB"(the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09,Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies principal versus agent considerations, in April 2016, the FASB issued ASU No. 2016-10,Identifying Performance Obligations and Licensing, which clarifies the identification of performance obligations and the implementation guidance for licensing, and in May 2016, the FASB issued ASU No. 2016-12,Narrow-Scope Improvements and Practical Expedients, which clarifies assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The updated guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted only for fiscal years beginning after December 15, 2016. The Company has startedreviewed the applicable ASU and has selected the modified retrospective transition method. In addition, the Company expects to elect the practical expedient to not adjust the promised amount of consideration for the effects of a preliminary assessment, butsignificant financing component when its payment terms are less than one year, as well as the practical expedient to exclude from the measurement of the transaction price sales and similar taxes collected from customers. To date, the Company has not yet selectedconcluded it will recognize revenue at the time of shipment to its customers consistent with when title passes. This is a transition method nor has it determinedchange from the effectcurrent practice whereby the Company recognizes revenue at the time of delivery to the customers and deferred revenue is recorded to account for the shipments in-transit. At the current time, the Company is continuing to evaluate the impact of the standard including its determination of whether the Company acts as principal or agent in certain vendor arrangements. The Company is also evaluating the impact of the standard on the presentation and timing of credit card income for its ongoingQVC-branded credit card and its financial reporting.
In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting forstatement disclosures, among other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract.areas. The Company has adoptednot quantified the effects of this guidance as of January 1, 2016, and there was no significant effectpronouncement, but it is working through the relevant aspects to evaluate the quantitative effects of the standard onnew guidance. The Company plans to be able to quantify the effects of these ASU's no later than the fourth quarter of 2017 in its financial reporting.annual report for the year ending December 31, 2017.


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In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The new principle is part of the FASB’s simplification initiative and applies to entities that measure inventory using a method other than last-in, first-out (LIFO) or the retail inventory method. The new standard is effective for the Company for fiscal yearsadopted this guidance as of January 1, 2017, and interim periods beginning after December 15, 2016. The Company has determined there iswas no significant effect of the standard on its ongoing financial reporting.

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In January 2016, the FASB issued ASU No. 2016-01, Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments with readily determinable fair values (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s ongoing financial reporting.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which revises the accounting treatment related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for the Company beginning on January 1, 2019 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has not yet determined whatis currently evaluating the effects of adopting this ASUeffect that the updated standard will behave on its ongoing financial reporting.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 with early adoption permitted. The Company adopted this guidance in the third quarter of 2016. In accordance with the new guidance, excess tax benefits and tax deficiencies are recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize forfeitures as they occur rather than continue to estimate expected forfeitures which resulted in an inconsequential effect to the condensed consolidated statement of operations for the nine months ended September 30, 2016.forfeitures. In addition, pursuant to the new guidance, excess tax benefits are classified as an operating activity on the condensed consolidated statements of cash flows. The recognition of excess tax benefits and deficiencies are applied prospectively from January 1, 2016. The presentation changes for excess tax benefits have been applied retrospectively in the condensed consolidated statements of cash flows resulting in $6 million of excess tax benefits for the nine months ended September 30, 2016 reclassified from cash flows from financing activities to cash flows from operating activities.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues to reduce the diversity in practice for appropriate classification on the statement of cash flows. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not expect the adoption will have a material effect on theits condensed consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income taxesTaxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize at the transaction date the income tax consequences of intercompany asset transfers.transfers other than inventory. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We areThe Company is currently evaluating the effect that the updated standard will have on ourits condensed consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption will have a material effect on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement for impairment by calculating the difference between the carrying amount and the fair value of the reporting unit. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption will have a material effect on its condensed consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not expect the adoption will have a material effect on its condensed consolidated financial statements.


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Item 3. Quantitative and Qualitative Disclosures about Market Risk
QVC is exposed to market risk in the normal course of business due to ongoing investing and financial activities and the conduct of operations by subsidiaries in different foreign countries. Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. QVC has established procedures and internal processes governing the management of market risks and the use of financial instruments to manage exposure to such risks.
Interest rate risk
QVC is exposed to changes in interest rates primarily as a result of borrowing activities. Over the long-term, QVC manages the exposure to interest rates by maintaining what QVC believes is an appropriate mix of fixed and variable rate debt.
The table below summarizes the Company’s debt obligations, related interest rates and fair value of debt at September 30, 2016:2017:
(in millions, except percentages)2016
2017
2018
2019
2020
Thereafter
Total
Fair Value
Remainder of 2017
2018
2019
2020
2021
Thereafter
Total
Fair Value
Fixed rate debt (1)$


400

3,150
3,550
3,589
$

400


3,150
3,550
3,654
Weighted average interest rate on fixed rate debt%%%3.1%%4.9%4.7%N/A
%%3.1%%%4.9%4.7%N/A
Variable rate debt$




1,570
1,570
1,570
$



1,390

1,390
1,390
Average interest rate on variable rate debt%%%%%1.9%1.9%N/A
%%%%2.7%%2.7%N/A
(1) Amounts exclude capital lease and build to suit lease obligations and the issue discounts on theour 3.125%, 4.375%, 4.45%4.85%, 4.85%4.45%, 5.45% and 5.95% Senior Secured Notes. Additionally, the presentation assumes there is no amount outstanding on the $140 million commitment under our senior secured credit facility that matures on March 9, 2020.
N/A - Not applicable.
On June 15,During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, 2016,2017, the fair value of the swap instrument was in a net asset position of less than $1approximately $2 million which was included in other noncurrent assets. A 1% change in the one-month U.S. LiborLIBOR rate (floating portion of the interest rate swap) willwould result in a change in the value of the swap instrument of less than $1 million.
Foreign currency exchange rate risk
QVC is exposed to foreign exchange rate fluctuations related to the monetary assets and liabilities and the financial results of its foreign subsidiaries. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated into U.S. Dollars at period-end exchange rates, and the statements of operations are translated at the average exchange rate for the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. Dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded in other comprehensive income as a separate component of stockholder's equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in income as unrealized (based on period-end transactions) or realized upon settlement of the transactions. Cash flows from operations in foreign countries are translated at the average rate for the period. Accordingly, QVC may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. QVC's reported Adjusted OIBDA for the three and nine month periodsmonths ended September 30, 20162017 would have been impacted by approximately $1 million and $3 million, respectively, for every 1% change in foreign currency exchange rates relative to the U.S. Dollar.
The credit facilityThird Amended and Restated Credit Agreement provides QVC with the ability to borrow in multiple currencies. This allows QVC to somewhat mitigate foreign currency exchange rate risks. As of September 30, 2016,2017, no borrowings in foreign currencies were outstanding.


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Effective September 15, 2016, QVC entered into a hedge of a net investment in a foreign subsidiary and the value of the hedge is affected by changes in the value of the Euro. A 1% change in the value of the Euro will result in a change in the value of this hedge transaction of approximately $6 million.


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Item 4. Controls and Procedures
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report.report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of September 30, 2016 with2017 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the consideration ofExchange Act is recorded, processed, summarized and reported within the material weaknesstime periods specified in our internal control over financial reporting as discussed in more detail in our Form 10-K for the year ended December 31, 2015 under Part II, Item 9A. Management has continued to monitor the implementation of the remediation plan described in our 10-K for the year ended December 31, 2015, which has been updated below.Securities and Exchange Commission's rules and forms.
Changes in Internal Control Over Financial Reporting
During the third quarter of 2016, we continued to review the design of our controls, made adjustments and continued implementing controls to alleviate the noted control deficiencies. Other than these items, thereThere has been no change in the Company's internal control over financial reporting that occurred during the three months ended September 30, 20162017 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Remediation Plan for Material Weakness in Internal Control Over Financial Reporting
In response to the material weakness identified in Management’s Report on Internal Control Over Financial Reporting as set forth in Part II, Item 9A in our Form 10-K for the year ended December 31, 2015, the Company developed a plan with oversight from the Audit Committee of the Board of Directors of Liberty to remediate the material weakness. The remediation efforts implemented include the following:
A monitoring control was established to identify inappropriate user access and incompatible or conflicting functions. The work of the identified individuals, with such duties, was then reviewed to determine whether they inappropriately utilized the incompatible or conflicting functions to perform any inappropriate activity.
Monitoring controls over manual and post-close journal entries were enhanced to ensure that there is adequate oversight over such entries.
Additionally, procedures were established to validate the completeness and accuracy of reports used in the financial reporting process to support control activities.
The Company believes the foregoing efforts effectively remediated the material weakness described in “Management's Report on Internal Control Over Financial Reporting” after the assessment date and prior to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2015. However, because the reliability of the internal control process requires repeatable execution, the successful on-going remediation of this material weakness will require on-going review and evidence of effectiveness.
Additionally, the Company intends to continue to monitor the incompatible or conflicting roles and related end user access to determine whether additional adjustments, to reduce or eliminate the occurrences of segregation of duties issues, should be made to such roles. This could further reduce the reliance on the monitoring controls identified.



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PART II


Item 6. Exhibits
(a) Exhibits
Listed below are the exhibits which are filed as a part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):
31.1
31.2
32.1
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Calculation Linkbase Document*
101.LAB
XBRL Taxonomy Label Linkbase Document*
101.PRE
XBRL Taxonomy Presentation Linkbase Document*
101.DEF
XBRL Taxonomy Definition Document*
*Filed herewith.
**Furnished herewith.


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SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
QVC, Inc.
Date: November 8, 20169, 2017By:/s/ MICHAEL A. GEORGE
 Michael A. George
 President and Chief Executive Officer (Principal Executive Officer)
  
Date: November 8, 20169, 2017By:/s/ THADDEUS J. JASTRZEBSKI
 Thaddeus J. Jastrzebski
 Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


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Listed below are the exhibits which are filed as a part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):
31.1
Rule 13a-14(a)/15d-14(a) Certification*
31.2
Rule 13a-14(a)/15d-14(a) Certification*
32.1
Section 1350 Certification**
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Calculation Linkbase Document*
101.LAB
XBRL Taxonomy Label Linkbase Document*
101.PRE
XBRL Taxonomy Presentation Linkbase Document*
101.DEF
XBRL Taxonomy Definition Document*
* Filed herewith.
**Furnished herewith.


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